How to set financial goals

Planning your budget can help you achieve what you want without sacrificing quality of life.

Pandemic taught Russians

Before paving the way, you need to understand where you are. Therefore, let’s start by revising the actual income and expenses. The more the budget has fluctuated from month to month, the longer the period needs to be covered — say, a year.

It is worth considering all sources of income, including one-time: salary, bonuses, freelance, income from renting an apartment, from the sale of old things and interest on deposits. The same should be done with expenses. It is important to analyze everything, even «little things»: the cost of transport, taxis and couriers, gifts to colleagues, a kindergarten for a child or any subscription. Banking apps show expenses by category. The cash part can be broken down at least from memory, but the more details, the better.

You then divide the costs in each category by the number of months in the analysis to get the averages by category — this will be the basis for budgeting. Costs that are easy to cut will be self-evident. If they are not yet so obvious, you can create two tables: in one, arrange the categories of expenses in descending order of importance, in the other — in descending order of size. It remains to compare the tables line by line: some expenses in the first table will be at the bottom, and in the second — at the top. Most likely, it is in these lines that your future realized financial goals are hidden. This approach does not differ in the rigor of the analysis, but it gives you the opportunity to see what is eating up your budget.

The example of these calculations shows that a person may not worry about spending on catering and entertainment, but he should optimize his many digital hobbies and think about alternative ways of getting around the city.

It is also important to think about whether it is possible to painlessly reduce the mandatory expenses, for example, get discount cards in your favorite stores, use cards with increased cashback in different categories when paying.

All this will allow you to form a budget for the month. In addition to income and expenses, it will also include the amount you save each month. Staying on budget is the first and simplest financial goal.

Understanding the structure of family cash flows makes it possible to control your budget in the present. And the remaining money can be saved for the future. But awareness is also needed here — clear financial goals.

The financial goal must be specific, measurable, achievable, meaningful and time-limited. For more details about the SMART method, we have already

Goals are usually divided into short-term, medium-term and long-term. Better to start with the first: achieving short-term goals will give confidence and motivation to implement a long-term strategy.

Short term goals are anything that can be achieved within a few months. The most important of them is to create an airbag and close small loans and credit cards. Experts

If there are a lot of loans, it is more profitable to repay the most expensive ones first (with a high interest rate) ahead of schedule. But if you have difficulties with motivation, you can use the «snowball» method: start with small ones. Each debt paid will feel like a small achievement and will give you the strength to move on. With any approach, it is important to focus on one loan and make the most, using all the unplanned income and savings for this.

An airbag is needed to cover expenses in all sorts of unforeseen circumstances: job loss, illness, breakdown of work equipment. There is no universal formula for calculating the minimum amount, but any pillow is better than none. Jesse Micum

There may be other short term goals as well. But having freed yourself from loans and formed an airbag (or, in any case, having made significant steps in this direction), you can move on to medium and long-term goals.

In the medium term, you need to continue to strengthen your financial security. But now that the debt is over, and the stash for a «rainy day» gives confidence in the face of external circumstances, you can remember about dreams.

Medium-term goals are considered to be for the next 1-5 years. These include, for example, home renovations, down payment on a mortgage, education abroad, or buying a new car.

At this stage, you should include investing in the stock market in your financial strategy.

The most important long-term financial goal and the culmination of the entire financial planning process is the formation of pension savings.