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Setting Financial Goals And Calculating How Much Money Is Needed

Define Your Goals

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To help you figure out what your goals are, ask yourself the following questions:

Question 1. Is the goal realistic, given my medical condition and current and expected income?

Question 2. How much will the goal cost and long would it take to achieve?

You don't need to know the precise answer at this point. However, if you want to save $50,000 to buy a sailboat, that clearly will take more time than it will to save $2,000 for a dream vacation in London.

Question 3. How will achieving the goal benefit me in the short run? The long run?

Think about why you want to achieve your goal and how achieving it will benefit you. Will you sleep better at night? Get immediate gratification? Improve your quality of life in the long run? Some other satisfaction? Which of these benefits is most important to you?

When thinking through the answers to this question, let go of what your family or society in general might expect of you. For example, many Americans are expected to want their own home. However, if you have a sweetheart rental deal and no desire to deal with the problems home ownership involves, you may feel comfortable just remaining in your rental. (Please do not take this suggestion to mean that we are suggesting you forget family obligations etc. We are merely suggesting you use your current situation as a spur to open your thinking.)

Question 4. What would I have to sacrifice to accomplish my goal?

Unless you have a lot of extra income -- or win the lottery - accomplishing financial goals takes money and time. Is the goal important enough to you so that you will be willing to work more or spend less on other things to accomplish it?

Question 5. What are the consequences of not achieving my goal?

If you don't achieve your goal, could you be worse off? For some goals, like having an Emergency+Fund or getting adequate health or property and casualty insurance coverage, the answer could be yes. Goals that if unachieved can hurt you financially should be given top priority.

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