Understanding Your Financial Goals
Setting short-term financial goals, as well as mid-term and long-term, is an important step toward becoming financially secure. If you aren’t working toward anything specific, you’re likely to spend more than you should. You’ll then come up short when you need money for unexpected bills, not to mention when you want to retire. You might get stuck in a vicious cycle of credit card debt and feel like you never have enough cash to get properly insured, leaving you more vulnerable than you need to be to handle some of life’s major risks.
Even the most prudent person can’t prepare against every crisis, as the world learned in the pandemic and many families learn every month. What thinking ahead does is give you a chance to work through things that could happen and do your best to prepare for them. This should be an ongoing process so you can shape your life and goals to fit the changes that will inevitably come.
Annual financial planning gives you an opportunity to formally review your goals, update them, and review your progress since last year. If you’ve never set goals before, take the opportunity to formulate them so you can get—or stay—on firm financial footing. Here are goals, from near-term to distant, that financial experts recommend setting to help you learn to live comfortably within your means, reduce your money troubles, and save for retirement.
Short-Term Financial Goals
Setting short-term financial goals gives you the foundation and the confidence boost that you’ll need to achieve the bigger goals that take more time. These first steps can relatively easy to achieve in as little as a year: Create a budget and stick with it. Build an emergency fund. Pay down the credit card debt that’s holding you back.
Establish a Budget: You can’t know where you are going until you really know where you are right now. That means setting up a budget, says Lauren Zangardi Haynes, a fiduciary and fee-only financial planner with Spark Financial Advisors in Richmond and Williamsburg, Virginia. “You might be shocked at how much money is slipping through the cracks each month.”
Categories of Credit Cards
Credit cards are broadly classified into categories like rewards cards, low-interest cards, and travel cards. Selecting the right category is crucial for maximizing benefits.
Credit cards fall into several categories, such as rewards credit cards, credit-building credit cards and low-interest credit cards. Other types of credit cards could include no-annual-fee cards and charge cards.
Here are some different credit card options that can suit a variety of needs:
Cash back credit cards might reward everyday spending on things like groceries, gas, dining, entertainment or other bonus categories. For every qualifying purchase, cardholders earn back a percentage of what they spend.
Redemption options for cash back rewards might include statement credits, checks or gift cards. There are different types of cash back cards, such as:
Flat-rate cards: These cards offer the same reward rate for all purchases.
Category-earn cards: These cards may offer higher rewards when you use them for specific things like groceries or dining out.
Travel rewards credit cards: Travel rewards credit cards allow cardholders to earn rewards, like miles. You might come across two types of travel rewards credit cards:
General travel rewards cards: These cards aren’t associated with any particular airline or hotel. This may give you more freedom to choose how to redeem your rewards. For example, you could earn rewards miles that you can use to book a flight.
Co-branded travel rewards cards: These cards are branded jointly by the credit card issuer and the merchant—usually a specific airline or hotel. When it comes to purchases, these cards typically function like any other credit card. But rewards may be limited to the specific airline or hotel associated with the card.
Travel cards also may have other benefits to help travelers. For example, Capital One travel rewards cards offer perks including statement credits for TSA PreCheck® or Global Entry application fees, access to airport lounges, and annual travel credits.
Points credit cards: Points credit cards might work similarly to other rewards cards. But instead of cash back or miles, rewards are offered as points. Similar to other kinds of rewards cards, you may be able to redeem points for things like:
Cash back, travel, gift cards, credit toward your account balance
Store credit cards: Store credit cards work a lot like other types of credit cards, though they’re affiliated with a specific store. And as the Consumer Financial Protection Bureau (CFPB) explains, “These cards typically provide additional discounts and frequent shopper rewards when used exclusively at their stores or with affiliate retailers.”
Two types of store credit cards can be great financial tools when used responsibly:
Private-label credit cards: These can usually be used only at the store and specified store affiliates.
Co-branded credit cards: Like traditional credit cards, these can typically be used anywhere—even outside the store and its affiliates.
Business credit cards: Whether you’re opening a small business or freelancing on the side, a business credit card can be useful if you’re an entrepreneur or a business owner. One reason is that it can help keep your business and personal expenses separate.
Plus, there are often other perks that might come with a business credit card:
Tracking and managing employee spending, as well as providing additional cards for employees to use
Rewards, such as cash back
Discounts with a select list of merchants
Secured credit cards: Secured credit cards are different from unsecured credit cards because they require a security deposit to open an account. The deposit acts as collateral. And it’s usually refundable. Other than that, a secured card functions the same as an unsecured card.
Because credit card issuers look at credit scores and credit reports during credit card qualification, applying for a secured credit card may be an option to help build your credit if you have less-than-excellent credit. Some secured cards even offer rewards.
Student credit cards: Student credit cards work similarly to other types of cards. But they’re tailored to college students without an established credit history. That’s why they might be easier to qualify for and offer more relevant perks and benefits.
By law, intro rates must last at least six months, but they can sometimes last longer. During that time, you can focus on paying down your account balance. That’s because you may not have to pay much—or any—interest, depending on the promotional period and rate.
When the introductory APR expires, the standard APR kicks in. The standard APR will apply to both your current balance, if you carry one over, and future card balances. Depending on your card’s terms and conditions, it could kick in early if you are late with payments or exceed your credit limit.
Balance transfer credit cards: When you transfer a credit card balance, you move an existing balance from one card to another—ideally at a lower interest rate. But you usually can’t transfer a balance to a card from the same credit card company.
If you’re carrying a credit card balance, transferring it to a card with a lower rate could help you pay less interest—if you use the card responsibly and pay the balance during the promotional period. It could also help you consolidate debt or combine multiple balances into one, which could simplify payments.
But keep in mind that a balance transfer could come with fees. According to the CFPB, balance transfer fees are typically a fixed amount or a percentage of the amount you transferred—whichever is higher. And that fee could impact any potential savings.
Credit cards with no annual fee: There are lots of good credit cards offering rewards and perks that don’t come with an annual fee.
If there’s no annual fee, that means you won’t be charged a fixed annual membership fee simply for having the card. But there may be other credit card fees or interest and finance charges, depending on how you use the card.
Charge cards: Charge cards function similarly to credit cards. But unlike a credit card, charge cards don’t usually come with a set spending limit. Instead, charge card accounts are often approved based on your financial history and your spending and payment habits. But they typically assess a fee to use the card.
Cardholders typically have to repay the balance on a charge card in full each month or when they get their statement. That means balances aren’t carried over to the next month. And missing payments could mean late fees or other penalties.
| Card Type | Best For | Key Features |
|---|---|---|
| Rewards | Everyday spenders | Earn points, cashback, or miles on purchases. |
| Low-Interest | Debt management | Low or 0% APR on purchases and transfers. |
| Secured | Credit building | Requires a refundable security deposit. |
| Travel | Frequent travelers | Offers miles, travel insurance, and no foreign transaction fees. |
Fees and Interest Rates
Consider all fees associated with the card, including annual fees, foreign transaction fees, and penalty charges. For those carrying a balance, prioritize low APR cards.
| Fee Type | Low-Fee Card | Premium Rewards Card | Travel Card |
|---|---|---|---|
| Annual Fee | $0-$39 | $95-$450 | $0-$99 |
| Foreign Transaction Fee | 3% | 0% | 0% |
FAQ
How do I know which credit card is right for me?
Start by identifying your financial goals. For example, choose a rewards card if you spend consistently or a low-interest card for managing debt.
Are annual fees worth it?
Annual fees are worth it if the card offers valuable benefits that outweigh the cost, such as higher rewards or travel perks.
What’s the difference between secured and unsecured credit cards?
Secured cards require a deposit and are ideal for building credit. Unsecured cards don’t require a deposit but may need good credit.
How can I improve my chances of credit card approval?
Maintain a good credit score, provide accurate information on your application, and apply for cards within your credit range.
Is it safe to apply for a credit card online?
Yes, applying online is safe when done through the card issuer’s official website or a trusted comparison platform.
