Why Is it Very Important to Set Financial Goals?

Whether it's investing, applying more money toward debt repayment or putting money aside for retirement, a few dollars today can add up to a lot of money down the road. Setting specific financial goals is necessary to make sure you end up where you want to be in the future. Without goals, your income in retirement could fall short of your needs and the length of time you carry debt could increase.

If you want to pay off a credit card debt, for example, you may make sensible choices such as paying more than the minimum due each month. A smart way to achieve this is to set a goal to pay off your debt within a certain time frame. You can calculate exactly how much you have to pay per month in order to achieve your goal. Without this plan, you could be in debt much longer than you need to be and pay much more in interest charges as you continue to carry the debt. In addition, more time in debt means more chances for unexpected financial circumstances in which you cannot make payments and risk default.

If you want to create a retirement nest egg, you may do a calculation of the amount you need to put away every month so you can maintain your income into retirement. You may create an initial goal to retire at 65 and plan your finances accordingly. However, you may discover in this planning process that a few dollars more each month will help you to retire early or give you enough money to fall back on in case of an unforeseen emergency. A retirement plan is necessary to ensure that you will be able to support yourself beyond your working years. Without this plan, your income could fall short.

You can shift goals as circumstances change. In the retirement example, if you have the goal of early retirement, you can reduce your contributions to savings if you experience an unexpected job loss during your working life. However, with the money already contributed in your previous plan, you may still be able to retire at the usual age of 65 even after a time of reduced contributions. When things look up, you can reassess your early retirement goal and increase contributions to make up what you've lost if you choose. Without a financial plan, you do not create this option for yourself and you risk not having the available income you need during the years you can no longer earn it for yourself.

A specific goal will help you to stick to your game plan so you achieve your goal. For example, if you wish to pay off your credit card debt but do not have a specific goal apart from simply paying more than the minimum each month, you may continue to use the card and potentially lose track of what you owe. A specific goal with a specific time period attached will also include a resolution to stop incurring more debt on the card. This will keep you in financial control. A lack of a financial goal means no resolution to modify your behavior and a tendency to succumb to credit card marketing and incur more debt.