Financial goals

What It Means

Financial goals are the things you want your money to do, written down as targets: build an emergency fundEmergency fundMoney set aside only for unplanned costs, like a car repair, a medical bill or a lost paycheck, kept where you can reach it quickly. See more, pay off a credit card, save for a down paymentDown paymentThe share of a home's price you pay upfront in cash when you buy it; the mortgage covers the rest. See more, or put money away for retirement. A useful goal names an amount and a deadline, which turns it into a monthly figure you can plan around. The Consumer Financial Protection Bureau (CFPB) uses the SMARTSave More TomorrowA savings plan by Richard Thaler and Shlomo Benartzi in which you agree now to raise your retirement contribution each time you get a pay raise. See more checklist for this: a goal should be specific, measurable, achievable, relevant and time-bound.

How It Sounds at Home

• "Our goal is $6,000 in the emergency fund by next June."
• "Pay off the card first, then start the house fund."
• "I need a goal with a number on it, or I just don't save."

The Breakdown

Worked example. A household sets three goals at once:

The card line leaves out interestInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more, so the real payment will run a little higher; the card's statement shows what it would take.

What the result means. The total is what these goals ask of you each month. Compare it with what's left after bills in your budgetBudgetA plan for a set period, usually a month, that lists the money you expect to receive and how you'll spend or save it. See more. If $1,100 is more than you can move, you have three levers: give a goal more months, lower a target, or finish one goal before starting the next. It can make sense to fund the emergency fund and any high-interest card first, since one covers surprises and the other costs the most to carry.

Short and long term. FINRA points out that a family vacationFamily vacationA trip taken together by a parent or parents and their children, usually planned around school breaks, the children's ages and a shared budget. See more next summer and a retirement decades away call for different approaches: money for the first is usually just saved, while money for the second is often invested. Cash you'll need within a few years belongs somewhere safe and easy to reach, like a savings accountSavings accountA bank or credit union account for money you're setting aside for later, which earns interest and is insured up to federal limits at insured institutions. See more.

Good to Know

The CFPB's Your Money, Your Goals toolkit includes a goal-setting tool that starts with a list of what you hope for, sorts each item into short-term or long-term, and ends with an action plan, and its "My new money goal" worksheet turns a goal into a saving plan. FINRA's guidance on setting a time frame for each goal makes the same point about a vacation fund and a retirement fund being handled differently. Before committing a monthly amount, check it against the bills due before your next paycheck, so the saving doesn't lead to an overdraftOverdraftWhen a payment is bigger than your checking balance and the bank pays it anyway, leaving a negative balance you owe back, usually plus a fee. See more.

Related Terms and Categories

• Savings goal

  A specific amount you plan to save by a set date for one purpose, which turns into a monthly or per-paycheck amount to set aside.

• Emergency fund

  Money set aside only for unplanned costs, like a car repair, a medical bill or a lost paycheck, kept where you can reach it quickly.

• Sinking fund

  Money set aside in small, regular amounts for a known future cost, so the bill doesn't land on a single paycheck.

• Pay yourself first

  Moving a set amount into savings as soon as you're paid, before bills or spending, so saving comes first instead of from what's left.

• Money mindset

  The beliefs and attitudes about money you carry, many of them learned in childhood, that shape how you spend, save and talk about it.

• Savings rate

  The share of your income you save, found by dividing what you saved in a period by what you earned in that same period.

Household money and budgeting