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SmartAsset: Setting Long-Term Financial Goals in 2022

Financial goals come in all different forms, from setting money aside for emergencies to setting up a trust to pass your assets on at the end of your life. All financial goals are important, but long-term financial goals tend to have more steps and, of course, require a long-term commitment. Let’s break down how to set and reach your long-term goals, with common examples to follow.

A financial advisor could help you create a financial plan for your long-term needs and goals.

What Are Long-Term Financial Goals?

Generally speaking, long-term financial goals are those that will take five or more years to achieve. Oftentimes, long-term financial goals are as simple as setting up automatic savings or investment contributions that will build up over time. In other words, what makes these long-term financial goals is setting things up years in advance so you will have the money when you need it.

Common long-term financial goals include:

Of these examples, the only one that you should expect to require a significant time commitment is starting a business. The others, as mentioned, are merely a matter of setting things up ahead of time so the money will be there when needed.

How to Prioritize Long-Term Financial Goals

Prioritizing long-term financial goals can be especially challenging because you are saving for something far in the future. If you are one of the millions of Americans living paycheck to paycheck, it can be especially challenging. In any case, it’s best to remember that the most important thing is to get started and that even small amounts of money can lead to significant growth given enough time.

Shorter-term financial goals, such as building an emergency fund and paying off credit cards, should continue to be your highest priority. Neglecting your short-term financial goals could lead to paying much more than necessary in fees and interest. However, you shouldn’t ignore retirement savings, paying off your mortgage and other long-term financial goals.

After you address short-term financial goals and priorities, contribute what you can to your long-term financial goals. Even if the amounts are small, it’s better to get started than to put goals like retirement savings off because it seems abstract and far off.

Set Specific, Long-Term Savings Goals

SmartAsset: Setting Long-Term Financial Goals in 2022

One of the most important parts of achieving any financial goal is to get specific. Even if you come up short of the monthly goal you set, deciding on a specific amount will keep you motivated. If necessary, you can always adjust your goal to a more achievable amount.

As an example, let’s take a look at how you can set up a long-term financial goal for your retirement savings. Consider the following steps:

  1. Determine retirement income. The generally accepted retirement income is 70% to 80% of the income you have while working. For instance, if you currently make $50,000, this amount is $35,000 to $40,000 per year.
  2. Subtract non-investment income. If desired, subtract non-investment retirement income, such as pension plans and Social Security. If that totals $20,000 per year, for example, you now have to cover between $15,000 and $20,000.
  3. Use a retirement calculator to map out scenarios. You can use a retirement calculator and input your desired retirement age and how much you contribute on a monthly or annual basis. The result will show you how much money you will have at retirement. Some calculators will also show your monthly retirement investment income.
  4. Calculate your withdrawal rate. Withdrawal rates vary, but the general rule is you can withdraw 4% of your retirement portfolio per year. You may use a lower percentage to be safer, but if the result is less than the amount at the end of Step Two, you are on track.

These steps will leave you with a specific amount you should aim to save each month toward your retirement goal. While it may seem complex, once you have your goal in place, there isn’t much ongoing work needed other than aiming to meet the amount you’ve decided to save. This example focuses on retirement savings, but you can use a similar process for other savings goals.

Build Long-term Goals Into Your Budget

Once you have determined how much you must save monthly to meet your long-term financial goals, it’s time to build that amount into your monthly budget. This is how you will hold yourself accountable for saving that amount; otherwise, it will be too easy to spend that money on something you want.

Whether you use the 50/30/20 method, the envelope method or some other form of budgeting, find the appropriate category and include your long-term goal. Going forward, you know that money will go toward your long-term financial goal every month and can’t be spent elsewhere.

Bottom Line

SmartAsset: Setting Long-Term Financial Goals in 2022

Financial goals are more about putting the right systems in place than something you have to think about every day. They are an essential part of your financial success, and while your day-to-day expenses and short-term financial goals may be the immediate concern, you shouldn’t ignore long-term savings. Even if you can only contribute small amounts, it’s important to get started. Determine the specific amount of money you will need to meet certain goals, then build that amount into your budget. Even if you aren’t saving much at first, you can increase the amount as your income increases. The important thing is to get started.

Tips for Setting Long-Term Financial Goals

  • Consider working with a financial advisor to create a financial plan for your long-term goals. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • In addition to your employer’s retirement plan, set up your own retirement account, such as an IRA.
  • Make sure to build your long-term savings goals into your budget to keep yourself accountable.

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