Setting financial goals can help grow and maintain your net worth. To maintain your net worth you should learn how much you have, set goals, and make a plan to meet them
Setting financial goals can help you feel in control of your financial situation so that you have a sense of empowerment and security around money.
Determine Your Current Net Worth
First, it’s important to determine your current net worth. Your net worth is the total of all your assets minus all your liabilities.
Start by gathering the documents that show your assets. This would include bank and brokerage statements, which can be accessed online, as well as documents like a home appraisal and vehicle titles. Add up the value of all your assets to determine their total value.
Then gather up all the records that show your liabilities. Bank and credit card statements, mortgage statements, car loan statements, and other loan statements are examples of documents you’ll need to gather. Add up the total amount you owe on each liability to determine your total liabilities.
Subtracting your liabilities from your assets will give you your current net worth. Let’s say for example that you had $10,000 in savings at a bank, owned a home with a market value of $200,000 and owed $150,000 on the mortgage loan for that home, and had no other debt or assets. In this case, your current net worth would be:
$10,000 + $200,000 (Home Value) – $150,000 (Mortgage Debt) = $60,000
Take an Inventory of your Assets
The second step in setting a financial goal is to take an inventory of your assets.
Take an inventory of your assets like
Stocks and bonds
Houses or other real estate holdings
Savings accounts and certificates of deposit
Retirement accounts, such as 401(k)s, IRAs, and savings plans
Knowing what you have is the best way to set a financial goal. This will allow you to see how much you need to earn or save in order to meet your goal.
Once you have an accurate picture of your current financial status, it’s time to start setting goals for the future.
Analyse your liabilities
The next step in setting financial goals is to get a good sense of where you’re starting from. This means analyzing your liabilities, or all of your debts and other obligations that might affect your assets and the amount of money you owe.
It’s helpful to look at both short-term and long-term liabilities separately. Short-term liabilities are any debts that are due within a year, such as rent, student loans, car payments, and credit card debt. Long-term liabilities include mortgages and other debts that won’t be due for more than a year. When calculating your net worth, it’s typically better to focus on long-term liabilities since these will have the biggest effect on your net worth over time.
Another good habit is to regularly check in on your spending habits. Make sure you’re doing what you can to keep costs low and maximize your savings.
The first thing you need to do is figure out how much you owe, and that means reviewing all of your bills. If you don’t have them with you right now, it’s a good idea to request copies from the various companies you owe money to; most will send them electronically.
Set Long Term and Short Term Financial Goals
After assessing your assets and libakites its timeto set goals.
First, determine your long-term financial goals. These are the goals that will help you maintain your net worth in the future. What do you want to do with your money? Do you want to save up for a house? A car? Do you want to travel the world? Do you want to donate to charity? Do you want to live debt-free?
These are questions that only you can answer. Your long-term goals are going to help shape what it is that you value and how much of your wealth is going towards those things. In addition, they will also help you determine how much of your net worth is disposable income versus how much should be being saved.
Next, identify your short-term financial goals. These are the goals that will help maintain your net worth in the present moment—they are things that can be accomplished within 5 years or less and involve spending a set amount of money.
Write it down, and make a plan to get there – Make an Actionable Plan
There are a ton of tips out there on how to set goals, but we have one that works for us every time—and we hope it works for you, too
When you’re setting financial goals, it’s important to set them in a way that makes them actionable. That means you need to write them down and make a plan for how you’re going to get there.
This is key because it allows you to break your plan down into smaller steps, which will make it feel less overwhelming. You’ll be able to clearly see the progress that you’re making as you go, too, which will help keep you motivated.
You’ll also be able to adjust your plan if necessary, so that it remains realistic for where you are in life right now—and where you hope to go from here!
Most importantly, don’t forget the little details: how much money can you put aside each month towards reaching those goals? Think about whether there are any sacrifices.
Prioritize the Goals Most Important to You
When you’re setting financial goals, there’s no one-size-fits-all solution. What’s important to you may be different from what’s important to someone else, so it’s critical that you set goals you actually care about.
For example, if your focus is on paying down debt and improving your credit score, then you may want to set a goal of reducing your monthly spending or increasing your debt payments—and consider whether it would make sense for you to consolidate your debts into one low-interest loan.
If, instead, you want to save up for a big purchase or a vacation, think about how much money you’ll need and what kind of timeline will make the most sense for you. If the purchase isn’t urgent or time sensitive, then a longer timeline (and lower monthly contributions) might work best. But if you need the cash sooner than later, then be sure to account for that in your goals.
As long as your financial goal is specific and something that you personally care about, it will be easier for you to achieve it—so spend some time really thinking about what matters most to you before setting your goals.
Track your spending
Keeping track of your spending is a critical part of understanding and managing your net worth. You need to know where every penny of your income is going, which means you have to keep track of everything you spend.
We know, we know. It’s a little annoying to have to keep track of every single little thing you buy, but trust us: You’ll thank yourself when you’re rich, and it only takes a few minutes a day. Keeping tabs on your spending will help you see where you can make cuts in your weekly budget and start saving for the future.
You might think that if you make a lot of money, it’s not necessary to keep a close eye on where all your cash is going. Not true! The more money you make, the more places there are for it to go, and the easier it is to lose track of. If you don’t keep tabs on what’s happening with your money, it can be gone before you even realize what happened!
So how do you do this? We recommend doing a quick check-in at the end of every day. Here are some tips:
Keep receipts for everything you buy—even those latte runs and $3 snacks from the vending machine at work add up!
At the end of each day, add up all your receipts and put them in an envelope or folder labeled with that day’s date. Do this until the end of the month, then examine what you’ve spent over.
Create a Monthly Budget
Getting your finances in order feels great, but it’s a lot of work.To keep your financial house in order, you’ll need to create a monthly budget.
To do this, start with your net worth statement.Once you have a net worth statement made, set some goals for yourself! It can be hard to know where to start—we recommend starting by thinking about what you spend most money on.
If you find that you spend too much on eating out or travel, that’s probably an area where you could cut back and save some cash. Do you spend too much at department stores? Try saving for your purchases instead of impulse-buying them
Watch out for Lifestyle Inflation
What is lifestyle inflation? It’s when a person increases the amount they spend after they get a pay raise or bonus. So, if someone was making $50k and living on a budget of $30k, then they got a raise to $70k, they might think “Oh now I can spend more!” and start spending $45k/year. But if their expenses have increased by 50% but their income has only gone up 40%, they may not actually have as much extra money as they thought.
Setting financial goals can help prevent this kind of thing from happening—and help you build your net worth.
It’s normal to want to reward ourselves with a new TV or a nice restaurant after we pay off our mortgage or save up for a down payment on a house. But spending more money than you earn is an easy way to derail your financial goals.
To avoid lifestyle inflation, commit to keeping your standard of living the same for a set period of time. For example, you could commit to keeping your expenses the same for six months after you get a raise or start a new job. Or decide that you won’t increase your expenses for every $5,000 in salary you earn.
By resisting lifestyle inflation, you’ll be able to save more money and increase your net worth
Create a Retirement Plan
Every adult should have a retirement plan, and by “retirement plan” we mean a way to grow your net worth without actively working for money.
It’s not enough to just want to travel the world or take that art class in Italy—you need to figure out how much it will cost and how long you’ll need to save.
Start by doing some research on how much you’ll really need to live on in your later years. Then add up your assets: what do you own that’s worth something? What other sources of income will you have? We’re talking about your 401k, pension plans, real estate, and so on. Subtract this total from the amount of money you think you’ll need when you retire and save the difference.
Tackle taxes before they pile up
Taxes are kind of a big deal. If you’re like most people, they’re the biggest expense you have—and yet we often don’t think about them until it’s too late. The good news is that you can do a lot to make sure that paying your taxes doesn’t undo all the hard work you’ve done to maintain your net worth.
First, if you’re an employee and your employer offers a retirement plan, take advantage of it! Most employers will match whatever you contribute up to a certain percentage of your paycheck. You’d be crazy not to take advantage of that!
If you’re self-employed, invest in some good accounting software so that you can track all your income and expenses as soon as they happen. That way, there won’t be any surprises when tax season rolls around next year. Plus, if you have a business, you may be able to deduct some expenses from your income and lower your overall tax burden.
Finally, start saving now for next year’s taxes! While it’s true that taxes are the biggest expense most people face, the IRS will give you four extra months—until April 15th—to pay your taxes in full. That gives you something to look forward to (and hopefully time enough to save money)
Don’t forget about the little things
Setting financial goals is important, but it’s also easy to forget about the little things.
We’re talking about your daily habits—like if you feel like you need to stop at Starbucks every morning and a bagel shop every afternoon, you could be spending more than $60 per week on lattes and bagels. That’s $60 that could go toward your financial goals! It’s amazing how much of an impact small changes can have on your bank account (and your overall net worth).
Here are some tips to help you get started with setting financial goals:
1. Set short-term goals – Most people think they should only focus on long-term goals like buying their first home or saving for retirement, but setting small financial goals can be just as important. You should have an idea of what you want to do with your money in the next month, six months, and year, and you’ll be better able to get there if you set goals that help you achieve those dreams. For example, if you want to go backpacking around Europe this summer, start by making a list of what you need: travel insurance? A new backpack? A Eurail pass? These are all great short-term goals that will get you closer to your dream trip.
2. Track your spending – If you’re not sure where all your money goes, take a look at where it’s been going! Keeping track of every purchase you make for a month or two can give you a lot of insight into how much money is leaving your bank account—and what for.
Set Goals for Saving and Investing
The best way to maintain a healthy net worth is to set financial goals. It can be challenging to do this if you never have, but setting and achieving financial goals has the potential to change your life!
You should set goal(s) for saving, as well as goals for investing.
When you start setting goals, it’s important to choose the right ones. This means goals that are measurable and attainable, but also meaningful enough to inspire you and keep you motivated over time.
For example: If you want to save more money, try starting small by saving $20 from each paycheck. When you accomplish that, try increasing the amount each month by $10 until you’ve reached your desired savings amount for the year.
If you want to invest in something—like a new car or a house—make sure it’s something that truly adds value to your life; otherwise it will just drain your resources and make it harder for you to reach other important financial milestones.
Create a plan to pay down high-interest debt first
When it comes to your finances, you want to pay down high-interest debt first. If you have any credit cards that have an interest rate above 15%, you should prioritize paying those off as quickly as possible to avoid throwing away money on interest fees.
If you can’t pay off your high-interest debt, try negotiating with the lender for a lower rate. You can also consider transferring your balance to a low-interest card or taking out a personal loan at a lower rate to pay off the high-interest debt.
Next, look for ways to increase your income. For example, if you have a side gig or hobby, see if there’s any way to turn that into a money-making venture.
Develop an investment strategy based on your risk tolerance and time horizon
It is good to develop an investment strategy based on your risk tolerance and time horizon. If you’re young, have a long time until retirement, and are willing to take risks, then it’s best to invest heavily in stocks because they have the potential for high returns. If you’re older, have less time until retirement, or are unwilling to take risks, then it’s best to invest more in bonds because they have lower returns but are lower risk as well.
Next, you need to diversify your portfolio by investing in different asset classes and geographical regions. This is because if one part of the market suffers losses, another portion may do well enough to offset the losses.
Set limits on how much you are willing to lose when investing so that you can avoid making emotional decisions that could lead to large losses. For example, set limits like “I won’t sell any stock if its price drops more than 10%”.
Plan ahead for large, recurring expenses
One of the smartest ways to set financial goals is to plan ahead for large, recurring expenses. Sometimes they’re predictable, like an annual tax bill, but sometimes they’re more random, like getting your car repaired every 3 years.
But instead of waiting until you’ve gotta pay them to figure out how you’re going to do it, try setting aside money in advance so you don’t have to scramble at the last minute and borrow money (or worse).
If you set aside a little bit every month in advance, you’ll be shocked at how much better off you are when those expenses come up.
Setting financial goals can help grow and maintain your net worth. You should learn and assess how much you have, set goals, and make a plan to meet them.
Creating financial goals can help you feel in control of your financial situation so that you have a sense of empowerment and security around money.