If you want to take better control of your money, your personal financial planning process should include setting financial goals. Your goals could aim to achieve everything from paying down debt to planning for retirement. Here are some suggestions to help you get started.
Why Is Setting Financial Goals Important?
Money isn’t everything, but it does play a significant role in our lives. Having an organized, goal-oriented approach to your finances helps you evolve from having constant financial worries to enjoying the life you deserve. Setting financial goals is a great way to motivate yourself to create and stick to a plan.
When you’re working toward a specific financial goal, you have the necessary direction, purpose, and structure to guide your financial decisions. The purpose of a financial plan isn’t just to be more financially responsible or to be able to make a large purchase — it also benefits the overall relationship you have with money.
Benefits of Financial Goal Setting for Military Families
Financial planning is especially beneficial for military families that have a more urgent need to get finances in order and set goals due to frequent relocations and highly unpredictable circumstances.
Adapting to Military Lifestyle Changes
Military families navigate unique challenges, such as deployment, constant relocation, and transitions back into civilian life. Having the right financial goals will help you face these challenges head-on without worrying about a lack of money to sufficiently cover the associated expenses.
Building Long-Term Security
If your military family wants long-term security, you can achieve it by setting smart financial goals. Building a robust savings account, buying right-sized insurance, and creating an investment plan tailored to your military lifestyle are some of the steps that can help get you there.
Protecting Loved Ones
A primary financial goal for most military families is providing a safety net for loved ones. The nature of military service makes it necessary to plan for the unthinkable so that your family has peace of mind knowing they'll be taken care of in your absence.
3 Types of Financial Goals
There are three types of financial goals you can set that vary by timeframe. Always consult a trusted financial professional to ensure you choose the best savings strategy for your financial situation.
1. Short-Term Goals (1-5 Years Ahead) include more easily achievable goals, such as saving to build up an emergency fund. Example:
Say you can afford to save an average of $500 from each paycheck. Saving $500 from each bi-weekly paycheck will lead to a total savings of $10,000 after 20 paychecks (40 weeks).
Therefore, your short-term financial goal could be to save $10,000 in your emergency fund within 10 months. Once you have achieved that goal and you’re in the habit of regularly saving $500, you can then apply that money to other financial savings tactics to invest in your future.
Other examples of short-term goals include creating a budget or paying off credit card debt within a specific time frame.
2. Medium-Term Goals (5-10 Years Ahead) would be focused on paying off large debts, such as a car payment or mortgage.
If your debts come with high interest rates, you may benefit from refinancing them. If your debts have reasonable interest rates that can’t be refinanced, even small additional payments toward the principal can help you pay off loans faster.
3. Long-Term Goals (10+ Years Ahead) for servicemembers should include retirement planning. To find out exactly how much money you need to save for retirement, think about how much you could comfortably live off as an annual salary. This figure will vary based on your debts or your spending habits. If you have a military pension or another retirement plan, reduce this amount from your proposed annual retirement salary.
An example would be: If you save $600,000 in retirement funds, you should plan to live off of $24,000 per year to ensure your savings last. These savings can supplement your military pension and VA benefits, providing additional financial security during your retirement.
3 Steps to Setting and Achieving Financial Goals
These steps provide ways for your military family to start building a robust financial foundation.
1. Assess Your Financial Situation
Begin with a comprehensive understanding of your current financial standing. This involves gathering detailed information on all sources of income, assets, expenses, debts, and savings. You might need to track your spending over a period of 30 to 90 days to highlight areas where spending adjustments are needed.
2. Set SMART Financial Goals
Once you understand your current finances, establish your short-term, medium-term, and long-term financial goals using the SMART criteria. Remember that military families need to consider factors like deployments and relocations when setting these goals.
- Specific: Clearly define each goal. For example, instead of stating "save money," specify "save $5,000 for a down payment on a car."
- Measurable: Track your progress using smaller milestones that show how much progress you’re making.
- Achievable: Set realistic goals that take into account your current financial situation.
- Relevant: Align goals with your family's needs and values.
- Time-bound: Assign a deadline to each goal to maintain focus and motivation.
3. Create a Financial Plan
Now that you have some realistic financial goals, set up a plan to achieve them.
- Develop a realistic budget: Account for all regular expenses, including housing, utilities, groceries, and transportation. Don't forget to allocate funds for savings and debt repayment. Utilize automatic transfers to savings accounts to simplify the process.
- Establish an emergency fund: Aim to save enough to cover 3-6 months of essential expenses. This fund acts as a financial buffer against unexpected events, such as medical emergencies or sudden relocations.
- Leverage military benefits: Familiarize yourself with the various benefits available to military families, such as the Basic Allowance for Housing (BAH), Basic Allowance for Subsistence (BAS), and educational assistance programs.
- Manage debt effectively: Prioritize paying off high-interest debts and try to avoid accumulating new debt.
- Plan for retirement: Take advantage of the retirement plans available to military personnel, such as the Thrift Savings Plan (TSP). Additionally, consider setting up an Individual Retirement Account (IRA) to further secure your financial future.
AAFMAA Is Here to Help
Start strengthening your finances today by enlisting the help of an expert. Contact an AAFMAA Membership Coordinator at 877-398-2263 or email [email protected] to review life insurance options that can help secure your future financial independence. Or get a quote and apply now.
This article was originally published August 4, 2022.