With the cost of living soaring, thinking about your future financial goals might be the last thing on your mind.
But money-management expert and Stop Worrying About Money author Jacqui Clarke said setting financial goals could actually help reduce stress and help you create a safety net in case of emergencies.
If you’re not sure where to start, here are Clarke’s top tips to setting ‘within-your-means’ goals.
1. Focus on your future
“Putting a future lens on your journey is essential to reducing the risk of screeching to a halt when you enter retirement,” Clarke said.
“To avoid the prospect of working for the rest of your life, you must begin your journey to financial freedom now.”
By casting your mind forward to the future, you can check if you are on the right track or if something may need to change.
2. Identify your baseline living costs
Next, identifying your baseline living costs (like housing, food, transport, energy and clothing) can help make sure you have enough wiggle room to deal with any challenges that come your way.
“You can never be sure of what lies ahead, so it will pay to take stock of your lifestyle choices and ensure they are structured to withstand what gets thrown your way (such as interest rate rises),” Clarke said.
It’s also worth looking at your discretionary spending and seeing whether that needs a fine-tune, she said.
3. Consider trade-offs
Also consider whether you can cut any unnecessary expenses or look for trade-offs so your cost of living aligns with your future goals.
“For example, changing your next holiday destination to a cheaper one and reducing your number of streaming service subscriptions: do you really use them all at once? Plus, it’s never a bad idea to investigate electricity provider options,” Clarke said.
4. Set goals
In terms of actual goal setting, Clarke said it was important to look at both your short- and long-term money goals.
“A short-term goal is usually one you wish to achieve within the next 12 months and could include paying off a credit card, seeking a new job or asking for a pay rise, or resetting those baseline costs,” she said.
“A long-term goal, which could be anytime within the next 10 years, may look like reducing your reliance on credit cards, buying a house or an investment property, or saving for retirement.”
5. Be clear and specific
Finally, when setting goals, make sure they are clear, measurable, attainable, and specific to how you intend to spend your money.
“Being clear on these goals and regularly reviewing them in conjunction with your baseline cost of living will reduce money worries and give you confidence and independence for the longer term,” Clarke said.
“Build up your savings buffer to protect you from the unexpected and think about what you are adding or subtracting as a part of your go-forward plan.”