When I talk to people about money and finance, they often ask me - Where do I start? What do I need to do to put myself on the right track? I always reply with a question and ask them if they have a set of clearly defined financial goals and whether or not their finances are organized.
I am a firm believer that these two things - setting powerful goals and organizing your finances are the foundation of financial success. Every financially successful person I've ever met has mastered these concepts early in their life and career. And if you want to be successful, you should master them as well.
Your Goals Are Your Roadmap in Life
We all know about the importance of goals. I don't doubt that you've heard or read many times that setting goals is important. But do you actually have goals? And more specifically, do you have clearly defined financial goals? If you don't, then this is where you need to start.
There are two main reasons why I think goals are so important. The first is because they help you define your destination. It is hard to make the right choices if you don't really know what you want to accomplish in the next month or the next 5 years. Your goals act as your guide and help you stay motivated when things get tough.
The second reason why you should have goals is to help you break down complex tasks into manageable pieces. For example, if I have a broad, long-term goal to reach financial freedom by the age of 45, it may not be immediately apparent what I need to do to get there. But once I start breaking up this big goal into smaller medium and short-term goals, the picture becomes much clearer.
The Characteristics of a Good Goal
I've met many people who say they have goals, but their goals are so weak and broad, they are pretty much useless. A good, powerful goal needs to have the following characteristics:
- It needs to be specific. Your financial goals should have numbers. Lots of them. If they don't, they are most likely too broad and unclear, and will not benefit you at all.
- It needs to be easy-to-track. When you look at each of your goals, you should have no doubt in your mind what you need to do to accomplish it. If you can't track your progress, how will you know if you are doing the right things?
- It needs to have a deadline. Every goal should have a deadline. Without one, your goals will lose much of their power. And you need to make a point to meet your deadlines no matter what it takes.
I like to have three different levels of goals - long-term goals (5+ years away), medium-term goals (1-5 years away) and short-term goals (less than 1 year away). Furthermore, I like to break each of my short-term goals into small tasks that I can easily complete.
The amount of detail you put into setting goals is up to you, but I am a firm believer than everyone should have detailed goals for all areas of life, not just finance. As crazy as it may sound, I currently have more than 150 goals in total.
Organizing Your Finances
Once you set powerful goals and know what you need to do, the next step is to organize your finances. Most of us have a fairly complex financial life. You probably have several credit cards, loans, mortgages and bank or retirement accounts. You may own one or more houses, along with other assets such as your car.
If you want to begin improving your financial situation, you first need to perfectly understand it. You should know exactly how much money you have and how much money you owe. You need to stay on top of your bills and loan payments. And you should know the balance on all of your accounts, your interest rates and your investment returns.
When you organize your finances, you will get a clear bird's-eye view of everything that's going on, which will help you tremendously when working to achieve your financial goals.
How Do You Organize Your Finances?
There are many awesome financial tools available today. And it absolutely blows my mind that so many people don't use them, especially considering that many of the best ones are absolutely free!
Long gone are the days when you had to manually track your financial goals, monthly budget or investment returns. Some people still use Excel to organize their finances, but even that is becoming more and more obsolete.
So what are my favorite financial tools? The undisputed winner is definitely Mint. It is a free online tool that automatically connects to your bank, credit card, loan and investment accounts, download and categorizes your transactions and lets you track and manipulate your financial data pretty much any way you wish. For example, you can create and track your monthly budget and financial goals, view your spending trends and track your investment portfolio returns. Check out my Mint review to learn more.
The runner up is Personal Capital. It is also a free online tool that can connect to your financial accounts and download transaction data. But while Mint is much better at tracking your personal finances, Personal Capital is vastly superior at tracking your investment portfolio. It allows you to analyze your asset allocation, compare your returns against various benchmarks and scan your portfolio for overpriced funds and underperforming holdings. I've written a great Personal Capital review if you want more details.
There are other tools that you can use to track your finances, but frankly I haven't found anything that beats Mint and Personal Capital in price and value. I have been using both of them for the last year or so and find them absolutely indispensable.
So What Are You Going to Do?
It's always easier to read or talk about something than actually do it, but inaction never leads to success. If you want to begin improving your financial situation and work toward reaching financial freedom, you need to take decisive action. Setting powerful financial goals and organizing your finances is a great start.
I hope you have the determination and the courage to act and set yourself on the right track to financial success!
Image Sources: OTA Photos, Yorklib, Kjonespr, Flickr
About the author : Anton Ivanov is a financial writer, a personal finance & investing coach, an investor and an online entrepreneur. He is the author of a popular personal finance and investing website Dreams Cash True and has recently published his first eBook - 7 Steps to Financial Freedom.