From a financial standpoint, goal setting is one of the most effective strategies to set yourself up for future success and financial stability. Reaching your biggest lifestyle or legacy goals begins with a financial plan. At its core, financial planning involves determining two things:
- The ways to earn, save, and spend your money, and
- The amount you need to earn, invest and spend.
The most important thing about the financial goal management process is that it should help you achieve your financial goals while managing inflation. Your financial plan should provide you with a direction to achieve your goals while managing the impact of inflation on your goals.
What are financial goals?
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What’s an ideal financial goal?
An ideal financial goal is SMART. For a goal to be powerful, it needs to have certain characteristics as below:
S- Specific: If your goal is to “become rich”, it’s not actually a goal but a wish. An example of a specific goal would be, “Increase investment amount by ₹75,000 each month to build a portfolio of ₹3 crore in 15 years.”
M- Measurable: The more specific the goal, the easier it is to measure. For example, if your goal is, “I want to save for a car,” you’ll have to add how much you want to put down on the car to make it a measurable goal. For example, if your car costs ₹8 Lakh and you want to put down ₹2 Lakh as a down payment, your measurable goal would be “I want to save ₹2 Lakh to put down on a car.”
A- Achievable: Your goal might seem difficult, but is it achievable if you push yourself? For example, if you are left with ₹5000 after the end of each month, and you have to save ₹ 2 Lakh to put down on a car, you may have to extend the timeframe to achieve the goal.
R- Realistic: A realistic goal is one that makes sense of your current financial standing. For example, if you have lost your job and are currently unemployed, saving for a car might not be a realistic goal.
T- Time-sensitive: Your goal needs to have a timeframe if you want it to be a smart goal. For example, using the car example again, you can make it time-sensitive by saying, “I have to save ₹2 Lakh over 12 months to pay as a down payment towards the car.”
Types of Financial Goals (With Examples)
|Types of Financial Goals||Examples of Financial Goals|
|Short-term goals (Less than a year)|| - Buying an Air Conditioner, laptop, two-wheeler, etc.
- Saving for a holiday trip/family vacation
|Mid-term goals (1 to 5 years)|| - Paying off debt to avoid a debt trap
- Saving for a down payment to purchase a new car
- Starting an emergency fund
|Long-term goals (More than 5 years)|| - Saving for your child (education/marriage)
- Purchasing a house
- Saving for early retirement/retirement
What is financial goal planning?
Financial goal planning is setting financial goals and creating a plan to achieve them. It is the most effective way to get more organised with your money. For example, you would have to budget your spending if you have to achieve a financial goal such as saving to buy a house.
How to plan and set financial goals?
Some of the time-proven tips on planning and setting financial goals include:
- Define your goals: Divide your goals based on when you’d like to achieve them. These goals can fall into any of these categories: short-term, mid-term or long-term.
- Create a monthly budget: You would be able to achieve your goals only if you have a plan to save money. The most effective way of doing it is by creating a budget. The budget helps you to keep track of your spending and cut unnecessary expenses.
- Select your best investment plan: Saving money in your bank account will not help you achieve your financial goals. You need to invest in plans/assets that give you a higher return on investment. We have published a whole blog on best saving plans & schemes in India, check it out to determine your best investment plan.
- Diversify your portfolio: It’s not wise to invest all your money in one asset class. Market fluctuations can cause large drops in the value of your investments, with you incurring huge losses. To distribute this market risk, consider investing in a chit fund to diversify your portfolio. Chit funds not only give you a higher return of investments than most investments, but they can also easily withstand market volatility.
- Build an emergency fund: The emergency fund has a big role in helping you achieve your goals. In case of an emergency, you don’t need to disrupt your savings/investments; you just need to dig into your emergency fund. Make sure you have at least 2 to 3 months of expense amount in your emergency fund.
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Setting financial goals will change the way you look at your money. You’ll start noticing how every small financial decision can impact your financial health. If you want to set yourself for financial success, you’ll need to set goals and make small and large sacrifices to achieve them.