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PFM Assignment 1

This document outlines short, mid, and long-term financial goals for planning one's future. Short-term goals include establishing a budget, creating an emergency fund, and paying off credit card debt. Mid-term goals involve getting life and disability insurance and paying off student loans. Long-term goals center around retirement planning such as estimating needs, saving 10-15% of income, and maximizing employer retirement contributions. Consistency is emphasized over perfection in achieving goals over time through annual financial reviews.

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40 views

PFM Assignment 1

This document outlines short, mid, and long-term financial goals for planning one's future. Short-term goals include establishing a budget, creating an emergency fund, and paying off credit card debt. Mid-term goals involve getting life and disability insurance and paying off student loans. Long-term goals center around retirement planning such as estimating needs, saving 10-15% of income, and maximizing employer retirement contributions. Consistency is emphasized over perfection in achieving goals over time through annual financial reviews.

Uploaded by

coconutcrab
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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How to Set Financial Goals for Your Future

If you aren't working toward anything specific, you're likely to spend more than
you should. Annual financial planning gives you an opportunity to formally review
your goals. Key short-term goals include setting a budget and starting an emergency
fund. Here are goals, from near-term to distant, that financial experts recommend
setting.
Short -Term Financial Goals
Setting short-term financial goals can give you the confidence boost and
foundational knowledge you need to achieve larger goals that will take more time.
Example like establish a budget, create an emergency fund, and pay off credit cards.
i. Establish a budget
You might be shocked at how much money is slipping through the
cracks each month. An easy way to track your spending is to use a free
budgeting program like Mint. You can also create a budget the old-
fashioned way by going through your bank statements.

ii. Create an emergency fund


An emergency fund is money you set aside specifically to pay for
unexpected expenses. To get started, $500 to $1,000 is a good goal.
Decluttering and organizing can help build emergency savings.
Consider turning a hobby into part-time work to devote that income to
savings.

iii. Pay off credit cards


Experts disagree on whether to pay off credit card debt or create an
emergency fund first. One method is called the debt avalanche;
another is the debt snowball. Debt negotiation or settlement is an
option for those with $10,000 or more in unsecured debt.
Mid-Term Financial Goals
Once you’ve created a budget, established an emergency fund, and paid off your
credit card debt—or at least made a good dent in those three short-term goals—it’s
time to start working toward mid-term financial goals. These goals will create a
bridge between your short- and long-term financial goals.
i. Get life insurance and disability income insurance
Term life insurance is the least complicated and least expensive type of
life insurance. Disability insurance will replace a portion of your income
if you become seriously ill or injured to the point where you can't work.
Most employers provide disability insurance; individuals can obtain it
themselves.

ii. Pay off student loans


Student loans are a major drag on many people's monthly budgets.
Lowering or getting rid of those payments can free up cash that will
make it easier to save for retirement. Refinancing or consolidating
student loans can help pay off.
iii. Consider your dreams
Mid-term goals can also include goals like buying a first home or, later
on, a vacation home. College for your children or saving for when you
do have children.
Long-Term Financial Goals
The biggest long-term financial goal for most people is saving enough money to
retire. The common rule of thumb that you should save 10% to 15% of every
paycheck in a tax-advantaged retirement account like a 401(k), 403(b), or Roth IRA
is a good first step. But to make sure you’re really saving enough, you need to figure
out how much you'll actually need to retire.
i. Estimate your retirement needs
Estimate your desired annual living expenses during retirement. Base
this on what you currently have and are saving on an annual basis.
Include Social Security, retirement plans, and pensions. Estimate how
much in retirement assets you need for your desired retirement date.
An online retirement calculator can do the math for you. Oscar Vives
Ortiz, a CPA financial planner, says you can do a quick back-of-the-
envelope calculation.

ii. Increase retirement savings with these strategies


If you have an employer-sponsored retirement plan, the employer will
match a percentage of what you are paid. A 100% return is possible if
you contribute enough to get your full employer match. IRA
contributions should be made at the beginning of the year, not the end.

To sum it, you probably won't make perfect, linear progress toward achieving
any of your goals. The important thing is not to be perfect but to be consistent. If you
get hit with an unexpected car repair or medical bill one month and can't contribute to
your emergency fund, don't beat yourself up. The beauty of annual financial planning
is that you can review and update your goals throughout life's ups and downs. The
small things you do on a daily and monthly basis will help you achieve your financial
goals.

References
Fontinelle, A. (2021, January 8). How to Set Financial Goals for Your Future. Retrieved from
Investopedia: https://www.investopedia.com/articles/personal-finance/100516/setting-
financial-goals/

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