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Financial Goals for Students

The Power of Planning: Setting Your Financial Goals

Setting financial goals is a smart choice and can be very rewarding. When you set a financial goal, you define what you want and develop a plan for achieving it. Instead of wandering aimlessly, you have something to strive for and a clear path for getting there. After all, 10 years from now you don’t want to be laden with buyer’s remorse wondering where all your money went, do you?

Setting a financial goal is just like setting a personal goal. For example, if you decide you want to be an architect, you develop a plan of action that will get you there. First, you research college architecture programs. You decide which ones are best for you, apply, enroll and get the education you need. After you graduate, you search for internships at architecture firms and work up the hours to get your architect’s license. Along the way, you envision yourself in a rewarding job where you develop and draft beautiful buildings.

Financial goals are no different. If you want to buy a car, you must come up with a plan for paying for it. This might mean having to make some trade-offs. You decide where you can cut back expenses, how much money you are able to save each month, and set a goal for how long it will take you to save up for a down payment. You picture yourself driving your new wheels to motivate you to stick to your plan.

10 steps to reaching your financial goals:

  1. Define your goals – What do you want?. Here are some common financial goals:

    • Pay off a credit card or loan
    • Create an emergency fund
    • Contribute to a retirement plan
    • Save for a down payment on a home
    • Save up for a large purchase such as a car, boat, big screen TV
    • Set aside money for travel
    • Save up for college
    • Invest money in the market
    • Start up your own business
       
  2. Write down your goals. When you write down your goals, you are more likely to achieve them. It also helps you assess what you really want.

  3. Prioritize. You may have a lot of goals. After you write them down, prioritize them. This will help develop a plan of action you can stick to.

  4. Be specific. Define an amount, a time frame, and what the money is for in your financial goal. Example: “I would like save up $20,000 within the next 10 years for a down payment on a house.”

  5. Be realistic. Set a goal that is reasonably attainable. You can always revise your goal in the future depending on how you are doing with your plan.

  6. Develop a plan of action. After you define and prioritize your goals, come up with a plan on how to meet your goals by working with your monthly budget. For example, if you want to save $1,000 for a new TV over the next year, see if you are able to set aside $84 a month towards it. If so, after 12 months you will have the $1,000 you need to make the purchase plus interest you earned on your savings.

  7. Don’t forget interest. If your goal is to save a certain amount of money, open an account that will allow you to earn the highest rate of interest and your savings will increase faster. If your goal is to pay something off, keep in mind you are paying interest on that item. Many experts advise that you put any extra money you have for paying off loans and credit cards to the item with the highest interest rate first.

  8. Set milestones. If you want to save $5,000 in the next five years, set short term goals along the way. You may decide that during the first year, you will save $700, the second $800, the third $1,000, and so on.

  9. Commit yourself to your goals. You will probably have to make some trade-offs in order to meet your financial goals. Maybe you want to go to Italy for a week and you also want to save for a house. Weigh the importance of each goal and commit to meeting your milestones. Many times, you can still reach both goals – it may just take a little longer.

  10. Review your progress. Periodically check to see how you are doing with meeting your financial goals. Make adjustments to your plan as necessary. 

The power of paying yourself first.

Making money – and spending it – can feel very rewarding. However, saving can help you reach many of your financial goals. After paying your monthly bills, consider putting any extra money in your savings account immediately rather than waiting until the end of the month to see what is left over. This will prevent you from spending your extra cash on unnecessary purchases that can interfere with meeting your financial goals. When you save money, remember to do so in an interest earning account. Compound interest helps you reach your goals faster.

The Impact of Compound Interest

Saving $1 a day

  No Interest 3% daily compounding 5% daily compounding
Year 1  $     365  $371  $374
Year 5  $ 1,825  $1,969  $2,073
Year 10  $ 3,650  $4,256  $4,735
Year 20  $ 7,300  $10,002  $12,542
Year 30  $10,950  $17,757  $25,413

 

Saving $5 a day

    No Interest 3% daily compounding 5% daily compounding
Year 1 $1,825 $1,853 $1,871
Year 5 $9,125 $9,844 $10,366
Year 10 $1,8250 $21,282 $23,676
Year 20 $36,500 $50,009 $62,710
Year 30 $54,750 $88,786 $127,065