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The Importance of Setting Personal Finance Goals

Discussing money and finances is awkward for many people and a topic usually avoided all together, even though money is constantly on the minds of most people. Why do people avoid engaging in conversations about money or their personal finances? Think back to the last time you had a serious conversation about your current financial situation with a family member or financial advisor. What were some of the emotions/feelings you felt having that conversation? Embarrassment? Stress? Fear?

People prefer not to talk about their personal finances, because of the vulnerable emotions that it can uncover. Identifying why we shy away from talking about it is an important step when money can be used as a tool for financial freedom if done properly.

Let’s look at the current state of personal finances in the United States. The statistics below give us a pretty good indication as to why people don’t like talking about money.

  • According to Market Watch, nearly 40% of Americans would struggle with a $400 emergency.

  • 33% Of Americans are not saving anything for retirement, while 50% of people have less than $10,000 saved for retirement

  • The average balance on a credit card is nearly $6,200, with that balance spread across an average of 4 different credit cards.

  • Only 1 in 4 Americans have some sort of written financial plan.

  • 70% of Americans say their financial planning needs work (Source: Northwestern Bank)

We want to provide an overview of why it is important to set financial goals and where you want to be in the weeks, months, and even years to come.

Write Down Your Goals. Your current financial situation is going to be completely different than the next person, which is normal. This is your starting point. Your current situation does not define you. With consistent action, compounded over time you will be amazed at what you can accomplish. Only about 3% of Americans write down goals, while under 1% rewrite them or study them throughout the year. You will need to do both, if you want to achieve what you write down.

Track Your Expenses. Tracking your expenses will open your eyes as to exactly where your money is going every month. The vast majority of people have adopted the use of credit and debit cards when making purchases. Using debit/credit cards makes it very easy to look at your bank statements and track where your money is going and how much you are spending in certain areas. More often than not, you will realize that you have common expenses and bills falling into these categories: apartment/mortgage, car, food/groceries, utilities, insurance, healthcare, and (hopefully) savings. All of these categories are known as important and essential for you to live. Focus on your living and working situations as a priority and then you know how much money you have left for the not-so-essential line items such as entertainment, dining out, and impulse purchases for example.

Create A Budget. The biggest way to find out where your money goes is to simply sit down and reflect on your bank statements and set a budget. Run the numbers and take into account all of the income you have coming in and set those numbers up next to your typical monthly expenses. If it is your first time creating a budget, you are probably going to be shocked when you see how much money is being spent on those non-essential expenses.

It is also worth noting that it’s good practice to revisit your budget periodically and reassess your expenses and priorities. Life happens and your income and expenses may fluctuate depending on the month or season. Leverage that income to examine and determine what expenses are necessary and those that aren’t. More than likely, after a few short months of budgeting, you will free-up some extra funds to pay off any debts you may have or even save those funds for the future.

References and Resources:

  1. https://spendmenot.com/blog/personal-finance-statistics/

  2. https://www.today.com/news/why-it-so-hard-talk-about-money-wbna43543561

  3. https://www.usatoday.com/story/money/2020/02/12/credit-card-debt-average-balance-hits-6-200-and-limit-31-000/4722897002/

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