During uncertain times, like we’ve seen with the COVID-19 pandemic, it can be hard to know how to plan your financial future. The key is to create a set of financial goals that you can work toward even during uncertain times, and which can help you build a strong foundation for your future financial wellness. Setting goals can be helpful not just for your financial future, but also for lowering your stress because you will be working from a predetermined plan.
Setting Short-Term Goals
When you start setting financial goals, your short-term goals should be focused on making sure that you can get through hardship that may come your way. Short-term goals may include such things as building up an emergency fund and paying down high interest loans or credit cards. Experts usually recommend an emergency fund of at least $1,000.
The key for short-term goals is that they should be achievable within a few months to a year. They should not be more significant or take longer; otherwise, they fall out of the range of short-term goals.
Setting Long-Term Goals
After setting your short-term goals, you should then set your long-term financial goals. Long-term goals should be steps you take to build a strong financial future for yourself in several years and even in a few decades. Long-term goals do not have to achieve anything immediately—they are more focused on benefits down the road. Long-term goals can include saving for retirement, paying off a house, and paying for your kids’ education.
When facing an uncertain future, it may not be possible to put as much toward your long-term goals as you might like. In particular, you need to make sure you can financially survive short-term hardship before prioritizing your long-term goals. There is no point in saving for retirement if you can’t pay your rent.
Understand How Different Scenarios Can Affect Your Goals
Once you have set some short-term and long-term financial goals, you should plan for a few different future scenarios and understand how those scenarios might affect your goals. For example, you could choose to predict what you think a good, neutral, and bad future could look like. Understanding what a bad scenario looks like is especially important when facing an uncertain future because you don’t know exactly what will happen, and you need to be prepared for the worst.
By having a general idea of these scenarios, you can then estimate what each would mean for your financial goals. You may need to adjust your goals depending on the scenario, and this adjustment may help you realize that you need to make some changes to your expectations of your lifestyle and/or your financial future.
One important thing to note: if in a bad future scenario you cannot meet your basic needs (food, rent, etc.), it may indicate that you need to start making changes today to protect your financial future. For example, you may need to try and increase your income or start building up an emergency fund.
Understand All Your Options
Finally, when facing an uncertain future, it is very important for you to understand all your options. This means looking at options that might be unique or temporary. In particular, when facing unprecedented situations like the COVID-19 pandemic, new financial options may be offered to those people affected. For example, relief has been offered on certain expenses like student loan or mortgage payments due to COVID-19.
So, to ensure you understand all your options when facing an uncertain future, you should do thorough research about your situation. This may mean checking online or calling your lenders to see what options they may be able to offer you. Even if your situation is not due to something as global as COVID-19, there still may be several options offered by your lender, which can help you achieve your financial goals and better prepare for the future.
Plan Carefully, but be Flexible
When creating financial goals for an uncertain future, careful planning can be enormously helpful for preparing for any scenario. If you have understood what may happen, you will be much better able to handle the future when it comes to pass.
However, it is also very important to remember that financial goals should change with your situation. The process of setting financial goals and assessing them in a variety of different scenarios is exactly that—a process. You are never really done with this process since as your situation changes, so will these potential future scenarios. Flexibility with your financial goals is key to your success at any time, but especially when your future is uncertain.
Source: Hannah Webb, Contributor to iGrad