John-Paul Flintoff

Step 2: Set your financial goals

Having learned your credit score, and calculated your net worth, you are in a position to set some financial goals.

Whatever you want to happen to your money in the future, it's crucial actually to set a goal. Or several goals. You might find it useful to set short-term goals and longer-term goals at the same time.

Short-term goals
Short-term goals might include building up some kind of emergency fund. Or paying off a debt emergency, if you are facing court action (more on prioritising debt here). Or saving to buy expensive consumer items, or holidays. You decide.

  • List your short-term goals.
  • Put them in order of priority.
  • Determine a date by which you want to achieve them.
  • Establish how much each one will cost.
  • Account for any money you have already saved towards them.
  • Plan how to save more.

The last item on that list is not difficult. It just requires you to be honest with yourself. How much do you want to do this? What are you prepared to do about it? Will you cut back on current expenditure? (If so, what?) Or if you simply can't bear cutting back, what will you do to earn more money?

What to do first?
It's a good idea to tackle at least one short-term goal, because achieving it will give you the confidence and motivation to do others, and to move on to longer-term goals.

But you don't need to wait to set your longer-term goals. You should do them at the same time – following the same steps as above.

Then draw up a worksheet showing all the things you are aiming towards, and a breakdown of the totals you need to earn and save each month. Make sure to fill out the worksheet each month, even if you missed your target sometimes. This is the only way to keep track of your progress. It may not be as much as you hoped, but every bit really does help.

Step 3: Make a budget