As singer/songwriter Joe Jackson succinctly put it, “You can’t get what you want, till you know what you want.” It’s the same with your personal finances. How can you accomplish your short-, medium- and long-term financial goals if you aren’t even sure what your personal financial objectives are? For some, the dream might be homeownership, while others may prefer to travel or simply aspire to live debt-free.

Not sure where to start? Here are steps to take when making financial goals to achieve in the coming year, within five years, and beyond.

Set short-term financial goals

The definition of a short-term financial goal is any money-related ambition that you can take steps to fulfill immediately, or within the next 12 months. As explained below, this can include establishing a budget to live within your means, reducing your spending, paying off debt, and starting to save.

Step 1: Create a budget

The 50/30/20 rule is one of the simplest ways to create a budget. You allocate no more than 50% of your after-tax income to your needs (rent/mortgage, utilities, transportation, groceries, childcare, etc.), 30% to your wants (such as new clothes, entertainment, dining out) and 20% to savings and/or debt repayment. If your current level of spending doesn’t fit the ratio, you’ll have to cut back or find ways to boost your income.

There are also budgeting apps that can help. Just install the app onto your mobile phone, link up your bank accounts, and the app will help control your cash flow. For instance, YNAB (You Need a Budget) keeps tabs on your spending and shows how much money is remaining at the end of the month. Plus, you may be surprised at how much you can save using this app: on average, new YNAB users reportedly save $6,000 in their first year.

Read more: The best budgeting apps in Canada

Step 2: Get a handle on debt

Make a plan to pay off credit card debt, student loans, or any other high-interest debt you may be carrying. The sooner you can unburden yourself from monthly debt-service payments, the less you’ll pay in interest charges.

The two most popular approaches to debt repayments are the “avalanche” and “snowball methods.” In the avalanche, you make the minimum payments on all your debts and then put any extra against the credit card or loan with the highest interest rate. With the snowball, you focus on paying off the smallest debt first, regardless of interest rate, so you can feel good about discharging one debt at a time.

Here’s a third option: if you’ve got high-interest credit card debt, consider transferring it to a balance transfer credit card. Typically, the best ones offer an introductory interest rate between 0% to 12.99% on balance transfers for a promotional period (usually between 6 to 12 months). The idea is to aggressively attack the debt and pay off the balance by the end of the promotional period. Doing so reduces your interest charges and debt repayment period – as long as you make payments and don’t rack up new debt.

Read more: The best balance transfer credit cards in Canada

Step 3: Start an emergency fund

Once you’ve paid off your high-interest debts, start channelling the money you would have put toward servicing those debts into an emergency fund. You’ll want to save enough to cover three to six months of expenses, which will help you avoid taking on new debt if you face a job loss, an accident or can’t work due to illness.

high-interest savings account can be a good place for an emergency fund, since you’ll be able to access those funds at any time and will still earn some interest income. To boost your savings even further, open a Tax-Free Savings Account (TFSA), so your interest compounds tax-free.

Read more: Emergency fund: what is it and why it matters

Step 4: Save for discretionary purchases

If you’d like to buy new furniture, tackle home improvements, take a trip, or spend money on anything else that’s outside of your budget, saving up for those expenditures are all excellent short-term financial goal examples. Again, you may want to park your savings in a high-interest savings account that offers a decent interest rate and no everyday banking fees.

Set medium-term financial goals

Some personal financial objectives take a bit longer to see through, such as paying off student loans, saving up for a down payment on a car or house, launching a business or upgrading your skills to boost your income.

Step 1: Save up for a down payment

The more you are able to put down upfront when purchasing a vehicle or home, the less you’ll pay in monthly carrying costs—including interest charges. Assuming you plan to save for at least three to five years before accessing the funds, you might want to start investing your savings so you can earn higher returns than you’d receive in interest income. Shelter those investments in a TFSA or RRSP if you’re saving for a home (since you can borrow up to $35,000 from an RRSP under the Home Buyer’s Plan) and let those earnings compound tax-free.

One of the best low-risk investments with high returns is a Guaranteed Investment Certificate (GIC). It’s similar to a savings account: deposit the money into an account and get an annual interest rate. What’s different is the GIC is typically “locked in” for a set timeline (usually between 30 days to 5 years). The interest rates vary, so check out our article on the best GIC rates in Canada.

Read more: How to save for a down payment on a home

Step 2: Look for ways to increase your income

This can include anything from taking courses to upgrade your skills, launching a side business, finding a mentor, applying for more senior positions or taking on more responsibility at your current job. There are lots of ways to earn a buck online too.

Read more: The best passive income ideas to grow your bank account

Set long-term financial goals

Personal financial objectives with a time horizon of more than five years fall into the long-term category. Examples of these financial goals include funding your retirement, a child’s education, or paying off a mortgage.

Step 1: Make a financial plan

Once you’ve got a handle on your short and long-term goals, it’s time to make a financial plan. This isn’t the same as a budget, which tracks and controls your cash flow. A financial plan is a detailed report that outlines your financial objectives, as well as charts an actionable path towards achieving them. It details how much money you have right now, how much you’ll need in the future, and what you need to do to reach your long-term objectives.

You can easily create your own financial plan, but for those who need a helping hand, a financial planning app can be a godsend. It can help you stay on budget, but also help set goals, monitor your net worth, test different financial scenarios, and project how much you’ll need to invest and save for the future.

Read more: How to create your own financial plan

Step 2: Invest for your retirement

The magic of compounding returns can take your retirement savings much further than seems possible, especially if you have time on your side. In other words, while your retirement may be decades away, the best time to start investing for it is now. Put those investments in a registered account—such as an RRSP or TFSA, where earnings compound tax-free—and the growth can be even greater.

Read more: A Guide to Retirement Savings Plans in Canada

Step 3: Fund a child’s education

If you have children, investing in a Registered Education Savings Plan (RESP) is another wise long-term financial goal, since the government will provide grants of 20% on annual RESP contributions of $2,500 or less. That’s up to $500 a year in free money (with a lifetime limit of $7,200) to help pay for a child’s post-secondary education or another eligible training program.

Read more: A guide to RESPs in Canada

Step 4: Pay Off Your Mortgage

So long as interest rates remain low, you may not care to shave any time off of your 25-year mortgage amortization. But as soon as rates begin to climb, paying down your mortgage faster can be a great strategy to minimize interest charges.

Read more: Should you pay off your mortgage early or invest the extra cash?

Financial goals examples

Financial Goals: Examples Timeframe
Short-Term Financial Goals Making a budget

Debt repayment

Starting an emergency fund

Saving for a vacation, home renovations, new furniture, and other purchases

Medium-Term Financial Goals Paying off student loans

Saving for a down payment on a house or car

Increasing your income
Long-Term Financial Goals Making a financial plan

Investing for your retirement or a child’s education

Paying off your mortgage

Last word about making financial goals

There are many other examples of financial goals that you might choose to undertake, including saving up for a sabbatical or parental leave, creating a will or estate plan, buying life insurance or disability insurance, purchasing an investment property, or improving your credit score.

The important thing is to take the time to consider what your personal financial objectives may be and come up with short-, medium- and long-term plans to achieve them. If you need more help setting financial goals, consider using a budgeting app. The most innovative apps can help you balance your budget, as well as prioritize short, medium and long-term financial goals.

Read more: A guide to retirement planning in Canada

Tamar Satov Freelance Contributor

Tamar Satov is an award-winning journalist specializing in the areas of personal finance and parenting. Her work has appeared in Canadian Living, The Globe and Mail, Today’s Parent, Parents Canada, Walmart Live Better and many other consumer magazines and websites.

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