Once you know the financial goal that will guide your financial plan, the next step is to figure out how you’ll reach it. This means adding up how much you’d need to save each year or each month to stay on track.
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What’s the next step after setting your financial goal?
Your financial goal should have a specific dollar amount attached to it. It could be as small as $500 to buy a new phone, or $500,000 to save for retirement. Your financial plan starts with knowing how much you’re saving, and how long you have to save for it.
The simplest way to plan is to divide your goal amount by the number of months you have to save for it. For example, if you want to save $1,000 in the next two years, this means you’d need to put aside about $42 each month, or about $10 each week.
When you break down your goal into smaller steps, it can feel more tangible. If you know your goal is to save $42 each month, you can look at your monthly budget to see how that goal can fit into the rest of your spending. You can also decide what trade-offs might be necessary in order to manage it.
If you’re not sure where to start, ask yourself questions such as:
- How much do you have to save each month to reach your goals?
- Will saving or investing be a better strategy to reach your goal?
- If your goal is to pay off debt by a certain date, how much do you need to pay back each month?
- Will you need to change your spending habits to reach your goal?
- Would you be able to pay your bills if you lost your job or had an accident and couldn’t work?
- Does your plan need to be adjusted to allow you to build emergency savings?
If you don’t have answers to all of these questions, you can take them one at a time and see what works.
A budget is a tool that can help you get a clear picture of your money coming in and out. From there, you can decide how you want to manage it or make changes. Learn more about creating a balanced budget.
What are some examples of ways to reach a financial goal?
There is often more than one way to reach your goal. Take some time to brainstorm different options. For example, let’s say your goal is to save $25,000 in the next three years to renovate part of your home. You could accomplish this in one of the following ways:
- Set aside $695 each month for the next three years in a savings account. If your savings account paid 1% interest, you’d only need to save $685 each month. Use our Compound Interest Calculator to figure out how much you’d need to save for your goal.
- Save your $695 each month in your Tax-free Savings Account (TFSA). If it’s part of a larger savings deposit, you could potentially earn more interest than if you’d saved the amount on its own. You can withdraw from your TFSA when you need it, and your interest will grow tax-free while the money is in your account.
- Make a plan to divide the $25,000 across a guaranteed investment certificate (GIC) ladder. For example, you could put $10,000 in a three-year GIC, $10,000 in a two-year GIC, and $5,000 in a one-year GIC. After three years, you’ll have more than the $25,000 you needed, because of the interest you’ll earn on your deposits.
If your goal is farther away than three years, other investing strategies might make sense. It all depends on your level of risk tolerance and when you want to reach your goal.
Try the financial goals worksheet.
Learn more about the differences between TFSAs and RRSPs.
How can you manage more than one financial goal?
It’s common to have more than one financial goal. You might be saving for retirement (a large, long-term goal) while also putting aside money in your TFSA for an emergency fund (a moderate goal). And you might also have some smaller, short-term goals such as saving for a vacation in the next year or saving tuition money to go back to school.
This means you’ll need to have money to put aside for all of these goals each month. If you’re able to make that work, then it may be as simple as setting up automatic transfers into your savings or investment accounts.
Decide which goals are most important to act on first. Make a list of what steps you need to take — including how much to save, how often, and where to place the savings. Then carry out the plan and adjust later if you need to.
Sometimes your financial situation can change and it’s important to know how you would adjust. For example, if your income is reduced or your expenses increased sharply, you’d have less money to put towards all your savings goals.
Setting priorities also helps you decide which of your monthly savings steps might get put on hold if your budget changes. For example, you might choose to continue the retirement savings contribution but pause your vacation savings. If you have a financial planner, they may co-ordinate this process with you and with any other professionals you need, such as a lawyer or accountant.
When should you review your financial plan?
At least once a year, set aside time to see if you’re on track to meet your goals. Your review could include steps such as:
- Tracking your progress toward your goals – are you saving enough, too little, or more than expected?
- Adjusting how much you save for each goal depending on your needs – has your life changed since you last reviewed your plan? Do you need to change your goals to reflect this? If your income or your financial goals have changed, your plan may need to change, too.
- Reviewing the accountstatements for your RRSP, TFSA and other investment accounts – how are your investments are doing?
Adjust your plan when you need to
If you’re not on track to meet your goals, that’s a sign to adjust your plan. For example, markets may not be performing as well as you’d like, slowing your progress. Or maybe your life circumstances have changed. Getting married or divorced, starting a family, retiring, or starting a business will affect your goals.
It’s normal to need to make some changes to your plan when your life changes too. If you’re working with a financial planner, they should review your situation with you from time to time. And they should help you adjust your plan, if needed, as your life changes.
| If you’re at this stage of life | Your financial goals may include |
| Post-secondary and early career years You may be getting training, going to college or university, starting a career, or maybe finding a life partner. Spending is often greater than income. |
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| Family and career-building years You may change jobs to enhance your career. Your income usually rises during these years. You may also start a family and want to save for your children’s education. |
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| The pre-retirement years Your expenses may start to go down, and savings can really start to build. If you have kids, you may help pay for some of their costs, like education or a first home. |
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| Early retirement years You may want to work less and pursue interests like travel, volunteer work or part-time work. |
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| Later retirement years You may become less mobile and may need to take care of health problems. |
Summary
Once you have a financial goal, or goals, in mind, it’s time for the next steps:
- Figure out how long it will take you to save, and how much you’ll need to put aside each week or month.
- Usually there is more than one way you can reach your goal. Saving or investing strategies can be used.
- You can work with a financial planner or financial advisor to help you put your plan into action.
- Make time at least once a year to review your plan and make changes if you need to.