Meeting financial goals begins with a plan

You have goals. Dreams. You want to live in a house of your own one day, or you want to send your kids to college. You want to be prepared for what life brings. And yet, the days go by and you’re still not saving enough, or saving at all.

If you want to start saving, it helps to take some time to think about your finances. You’ll need to set aside a few hours or an afternoon to set your goals and review your spending habits. Having this kind of clarity can do wonders for your savings: you’ll be motivated to save, and you can make smarter decisions about how you spend your money.

Set your goals

It’s easy to have a handful of vague goals, sitting in a fog in the back of your mind. The trick is to give those goals concrete shape and definition. You want a home, yes. But what kind of home do you want? A large home or a small home? What do you dream about and what can you live with? These considerations eventually lead to a number, a target value of the kind of home that you want.

When you have a value, you can set a target down payment that you want to work toward, say 10 percent or 20 percent of the home’s value. Now you know what you need to save, and you can set a time goal: Do you want to buy your home five years from now? Earlier? Later? Divide the down payment by the number of years you plan to save, and you’ll have a manageable annual amount for your goal.

With a few calculations, you’ve brought your goal that much closer to reality. Instead of a fog, you have a specific picture in your mind and a specific amount to work toward. This picture can help you in your day-to-day decisions, tilting your financial behavior in the direction of your long-term goals.

Prioritize your goals

You probably have multiple goals on the table, all of which are important to you. Think carefully about them — at least one slightly outweighs the other. Think about a strategy that works for you: fund one completely before you start on the next goal, or fund them proportionally, so that one goal receives slightly more of your savings than another. It all depends on what gives you peace of mind.

Spending habits

Grab the past two months worth of statements for your day-to -day accounts, or if you’ve got them, your year-end summaries for your bank accounts and credit cards. You’re going to want to start making cuts, and it can help you to have hard data. There may be a difference between what you think you spend, and what you actually spend: your records will clear that up for you.

Start with your discretionary spending: your wants and entertainment. How much do you spend on vacations? Electronics? Clothes? Games, movies, and equipment you rarely use? Look at other areas of your spending: do you eat out often? Do you have high housing costs? Calculate hard totals: the clearer your behavior is to you, the better.

Start making small lifestyle changes in order to save.

If your goals are truly important to you, they’ll be worth a few changes to your lifestyle. The trick is to start small and proceed slowly — you’ll want new habits to stick. Cut the most unnecessary spending habits first, and work your way in. You’ll be saving in no time.

Michael Camacho is the president and chief executive officer of Personal Finance Center. He has more than 18 years experience in retail banking and with financial institutions in Guam and Hawaii.

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