If you’re ready to go big or go home with your money goals this year, then stretch goals are for you.
By definition, stretch goals are harder to achieve. And although they require intense focus and work to achieve, they also come with bigger rewards.
Setting a financial stretch goal can help you challenge yourself to do more with your money. It can also lead to quick results, like creating wealth and increasing your net worth by thousands of dollars in a short amount of time.
How to set stretch money goals
If you’re the kind of person motivated by big possibilities for creating wealth, a stretch money goal can help you reach further this year.
When setting stretch money goals, first identify the area of your finances where you want to see the most improvement. It could be paying off debts, saving more, boosting your investments or your income.
Whatever you choose, you’ll aim for the biggest long-term benefits from goals that will boost your net worth.
From there, figure out what would be a “realistic” goal, based on your budget. This is a goal you feel you could achieve with few changes to your current money management or habits.
Now you’re ready to figure out your stretch goal. It can be tied to your realistic money goals, such as trying to save 50 percent more each month. Or it can be based more on your dreams and ideal situation, like saving enough to finally start a business.
Unlike the practical goal, it’ll probably take big changes, self-discipline, and efficient habits to accomplish. But working toward a stretch goal can help you overhaul your finances and make big money moves in a short time.
Here’s a look at some money goals you can set to challenge yourself and create wealth in 2018 and beyond.
1. Double your retirement account contributions
The average retirement account contribution for employees in 2013 was 6.8 percent of annual pay, according to the Plan Sponsor Council of America.
However, most financial experts recommend saving 10-15 percent of income for retirement. To do so, most people would need to at least double their retirement account contributions, if not more.
To achieve this stretch goal, you can go all out and double your 401k contributions on day one. Just make sure you’re adjusting your spending down to account for the amount that’ll be missing from your paychecks.
Alternatively, you can slowly step-up you contributions one month at a time. Start small with amounts you’re unlikely to miss, that way you can adjust your budget as you go.
If you contribute six percent to a 401k, for instance, raising your contributions by half a percent each month would accomplish this stretch goal — while easing you into smaller paychecks.
2. Put half of your discretionary income toward your debts
If you’re trying to pay down your student loans or debts aggressively, you’ll probably have to find extra cash in your budget. To stretch yourself and your budget toward this goal, make it a goal to use 50 percent or more of your disposable income each month to repay your debts.
Your disposable income is the amount that’s left over after you cover fixed monthly living costs, such as your rent, loan payments, and insurance premiums. In the U.S., the average household discretionary income is just over $20,750 annually, or around $1,730 a month, according to a Motley Fool analysis of 2015 U.S. Bureau of Labor Statistics data.
Therefore, if the average U.S. household put half of their discretionary income toward their debts, that would be an extra $10,375 toward debt payments each year.
Of course, spending just half of your discretionary income requires some measure of self-control and doing without. You’ll also need to track your spending and start skipping out on non-necessities.
By scrimping and saving, you’ll free up the money you need to take chunks out of loan balances and quickly pay off debts.
3. Get a promotion (and a raise)
Maybe your income simply falls short of what’s needed to achieve the financial security you want.
If this is the case, it’s time to make it your goal to get a big pay raise in 2018. But doing so will require that you step it up at work and prove your value as an employee.
To start working toward this goal, set up a meeting with your manager to ask for a raise. If you feel you’ve made a big impact in the past year, either by expanding your role or contributing to the company’s bottom line, point that out. You might be able to make the case that you already deserve a raise.
If you still have some work to do to earn a raise, ask your manager how to work toward that goal. Try to identify specific milestones that can help show you’ve earned one as well.
Pay attention to these conversations, and make sure you follow-up regularly to ensure you’re on track to get a raise. If it starts looking like you’re not going to get one from your current employer, start looking for jobs elsewhere. Switching jobs can often be the most effective way to significantly increase your income.
4. Get a side hustle with a higher hourly rate than your day job
Starting a side hustle is a smart way to diversify your income and create wealth. But it can also eat up your free time and drain other resources, like your energy or motivation.
To ensure a side hustle is worth it, you need to be able to earn more per hour doing your side gig than you do through your day job. However, earning that much through a side hustle probably won’t happen on day one. You might need to start charging less to build experience, a portfolio, and a network of references and clients.
Spend some time working on a business plan for your side hustle, researching what you can realistically charge and how long you can expect to spend ramping up a business. Then, get to work hustling and building a side business that pays better than your main gig.
5. Build a multi-month emergency fund
An emergency fund is an important financial buffer that helps keep your finances on track, even in the face of hardships or unexpected expenses.
Many experts recommend being able to cover a minimum two months’ worth of expenses with your emergency fund. Others may suggest as much as six- to eight-months of savings.
If you don’t have an emergency fund, saving one that’s equal to a few months’ worth of expenses is an aggressive goal. But you can achieve it.
Look for expenses you can scale back on to save more. And, consider picking up a side hustle and putting those extra earnings toward your emergency fund.
Do you have a tax refund or bonus coming down the pipeline? Put these windfalls into your emergency fund, too.
Whether you’re tackling debt, growing your income, or saving a nest egg, a financial stretch goal can help you do more with your money.
Working toward these kinds of money goals will challenge you. However, they will also prove that you can control your money and use it to do big things. And, you’ll also be creating wealth and building your net worth in ways that will benefit you for years to come.
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