Setting financial goals can be overwhelming. There’s much to consider, like what our lives will look like in the future and how our expenses will change overtime. But the process can become much simpler if we learn to both plan our goals and learn to be flexible about them.

In this article, we’ll walk you through three easy steps for setting financial goals, be them short or long-term ones. By the end, you’ll be able to understand why financial goals are important and how to think conceptually about them. At the same time, we’ll walk you through how to create a plan and how to keep your plans and goals flexible but still heading in the right direction.

Step 1: Think big and small

The challenge with setting financial goals is that they are often aspirational and intangible. We might know we want to buy a house but not what budget we’re working with. It’s important to be clear both on the amount we need to save and how we’re going to go about saving it.

To come up with an accurate plan, it’s important to take stock of where we are, what we have at our disposal, and where we want to go.

Short-term (Day-to-day)

Short-term goals call for immediate situations that need fixing, day-to-day responsibilities, and expenses we know are coming up in the near future. A good rule of thumb is to make sure your short-term goals are investments that you need to make as opposed to want to make. Why? Because short-term means you have little time to save up.

Say your child is starting school this fall. You’ll need to reorganize your budget to make sure you can pay for their tuition. Your short-term financial goal is to be able to pay for your kid’s education. Because you’re days away from making the first payment, you’ll need to make do with the resources you already have. In this case, your choice of school will depend on your existing budget, and other things might have to give, like buying cheaper brands at the grocery store.

Ideally, your short-term goals will help you navigate your current situation in the best way possible. In other words, short-term financial goals need to prime you for success later on.

Mid-term (5-10 years)

When we think about financial goals, buying a home is one of the first things that come to mind. And while buying a home is a big investment, it doesn’t mean you have to wait decades. However, you do have to start getting familiar with financial terms and planning early on.

Consider your current budget and how much money you can put away. If you committed to putting aside the same amount religiously, how much would have saved in five to ten years? This exercise will help you figure out two things: your buying power and whether your budget fits your buying needs.

Perhaps you can save enough for a $20,000 down payment, but you need a bigger house than what that can buy. And that’s okay. The great thing about mid-term goals is that you have time on your hands. Calculate how much more money you would need to make to achieve your new down payment goal and devise a plan to reach it.

Long-term (20-30 years)

Unlike short and mid-term plans, long-term financial goals can be a bit of a drag. They are so far off into the future that working towards them seems to have no payoff. However, that doesn’t mean they are any less important.

Long-term financial goals are meant to set you up for a future in which you’re not working anymore. That means retirement plans, insurance, and hefty emergency funds. Do you want to have a business that your daughter can run for you or do you want to own property and live off of rent? There are many options for long-term goals when we plan them way ahead of time.

Other long-term financial goals could include having a college fund for your children or saving up for a dowry gift.

If you know you want to have a solid busines that can bring revenue for you after retirement, then you need to use these 20-30 years to build and grow that business. If you want to make sure your mortgage is paid off or want to invest in a second property, then you need to make sure you can complete your payments while you’re still earning wages.

Step 2: Creating a plan

So, now we know how to come up with goals and how to set a deadline on them. But how do we go about achieving them? Meeting our goals is all about accountability. It’s about checking in on our progress and asking ourselves if we’re doing everything in our power to reach our financial goals.

Of course, this can be a recipe for stress and panic if we don’t have a roadmap. We can easily become overwhelmed thinking about everything we want to achieve in the next 30 years. Instead, turn each goal into smaller, actionable milestones.

Plan out how much money you need to save every month and divide the sum into different savings accounts. Set dates to check in with your insurance, to inquire about new positions at your job, or to farm for more business. If it helps, create an actual checklist where you can prioritize and mark your tasks as done. That will help put your mind at ease once a task is completed and help you remember what’s next.

Step 3: Account for rainy days

Not everything will go according to plan, for worse and better. Let’s start with the most talked about: unemployment periods and emergency expenses. It’s likely that something will come up at some point during our lives that will derail our financial plans.

Make sure that your budget is flexible and that you’re accounting for unforeseen circumstances. For example, create a budget plan assuming there will be a six-month period where you won’t be able to save. This way, your plans won’t be derailed when a surprise expect comes up.

Now, thinking about and managing negative or detrimental situations is, in many ways, already top of mind. However, the real kicker is learning how to navigate moments of surplus.

Maybe you got a bonus at work, inherited property, or just had a really good tomato season. Whatever it is, think of those moments as the counterpart of emergency expenses. While you definitely have a right to treat yourself or your family, also prioritize your financial goals and destine some of this surplus to furthering them.

And there you have it. There isn’t one way to achieve your financial goals, but thinking big and small, creating a plan, and accounting for rainy days will set you on for a path of financial success.

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