Setting financial goals is one of the most effective strategies 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.
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What Are Financial Goals?
Financial goals are specific targets you set to achieve by managing your money. The process of money management involves saving, spending, earning and investing. When you set financial goals, you have a clear picture of what you are aiming for, making it easy for you to work towards your target.
We are all different and because of this our financial goals are also different. To achieve a financial goal, saving and investing needs to be kept in mind.
Need For Setting Financial Goals
It is important to set financial goals, as having a clear picture of the goals makes it easier to work towards them. While setting financial goals, you should keep in mind that the goals are measurable, realistic, time-oriented and specific.
Just having big dreams isn’t enough. If you really want to live a financially stress free life, you need to map out a plan that will make that happen. This includes setting financial goals that support your values and priorities. The benefits of setting financial goals all work together to boost your financial health. You’ll gain more confidence in your money management decisions and live a debt-free life.
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Here are some benefits of setting financial goals:
- You can create a practical plan of action for your finances
- You know what your priorities are
- You strengthen your motivation and commitment
- You improve your money mindset
- Allows you to monitor your progress over time
- Forces you to make adjustments and remain accountable
Examples of Financial Goals
What Are Financial Goals?
The first step is setting a financial goal is to set a budget. Whether you depend on pay-checks or have a lot of money set aside for savings, setting a budget is still essential. Discipline is very essential for investing in any sector and when you set a budget, it is also a part of discipline. In this way, you can determine how much you are spending and how much you save and manage your personal finances. After setting a budget, you can follow it to meet your financial goals.
Check Your Credit Line
First, check your credit. Review your credit score and identify the factors that are affecting it. If your credit score is going down then you should take some measures to improve it like paying off your debts, giving loans on time or keeping your credit card balance low etc.
Build Emergency Fund
When it comes to how to set financial goals, people often overlook the importance of having an emergency fund. But having an emergency fund plays a crucial role in helping people achieve their financial goals. The emergency fund should have enough money to manage your expenses for at least 2-3 months. When you’ve got an emergency fund, you’re ready for those unexpected moments in life. Save money from your salary and build your savings.
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Create a Savings Goal for Yourself
Once you’ve set a budget, it’s time to set the savings goal. Naturally, your savings goal should be something that is achievable, but it should be big enough that you can manage it. Remember, the more you save, the more money will double over time.
It’s also important to note that once you set a savings goal, you’ll need to set aside as much money from your paycheck as you need to reach the goal. If the first part of your budget is savings, then there is very little chance that you will miss out on your budget. The easiest way to save money for the future is to spend less on things that are not absolutely necessary.
Pay Off Bad Debt
Focus on paying down high-interest toxic debt first, like credit card debt or payday loans. Paying off Bad Debts are more important financial goals than Savings and Investments. High interest, bad loans such as credit card loans and personal loans are not a hallmark of a good investment. Paying off such loans should be your first priority to go debt free.
Improve Your Credit Score
In order to get a loan, it’s always helpful to qualify for a lower interest rate. In simple terms, an improved credit score saves you money by qualifying you for lower interest rates. So, one of your financial goals should be to improve and maintain your credit score.
Save For A Down Payment Of A House
For most people, a home is the most significant purchase and investment. The larger the down payment, the more freedom and flexibility provided for the life of the loan. A 20% down payment is the standard for a good loan. Remember having a home loan is a far better investment than paying rent.
Develop Skills To Improve Your Income
It doesn’t necessarily mean a return to college for an additional degree. It might mean taking on additional training or responsibility at your current job. It might mean finding a mentor, who can provide tips and feedback. It might mean working a part-time job, attending conferences and workshops, networking in your profession, anything to acquire more contacts and knowledge. Small steps can lead to large payoffs.
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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. 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, a saving, investing, and borrowing instrument, are an additional investment alternative. Chit funds not only give you a higher return on investments (10%–15% p.a.) than most investments like savings accounts, fixed deposits, and recurring deposits (3%–6% p.a.). Additionally, they can also easily withstand market volatility. They are basically a form of regular monthly savings with the benefit that the depositor can withdraw their full investment at any moment during the investment period if they so choose. No fines or complications.
Starting A Business
Starting a business is a tough, but ultimately fulfilling endeavor. Who doesn’t want to be the boss? When starting a business, you will need to create a business plan, find seed money, and stick to a monthly budget within your means. If you love to be your own boss, this could be one of your financial goals.
You can read: Financial Awareness – Benefits, Importance for Entrepreneurs
Save For Your Retirement
Another important financial goal is retirement planning. Retirement may be decades away, but it’s important to start saving as early as possible so that you have enough money to survive on when the time comes. Most experts recommend saving 15% of your gross income each year. So, once you’re debt-free and have fully funded your emergency fund, you can start saving 15% of your income for retirement.
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How To Set A Financial Goal?
1. Write Them Down
When you write down your goals on paper, something amazing occurs. You’re also more likely to succeed in achieving them. Go ahead and commit to yourself by writing them down. After that, affix them to your desk, bathroom mirror, or car. Write them down in the Notes app on your phone, take a screenshot, then set it as your background image so you can see them constantly! You’ll stay focused if you keep your goals where you can see them.
2. Make Them 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 Rs 75,000 each month to build a portfolio of Rs 3 crore in 15 years.”
3. Make Them 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 Rs 8 Lakh and you want to put down Rs 2 Lakh as a down payment, your measurable goal would be “I want to save Rs 2 Lakh to put down on a car.”
4. Give Yourself A Deadline
Will you ever really reach your goals if they aren’t time-sensitive? Author Benny Lewis says, “There are seven days in a week, and ‘someday’ is not one of them.” Stop saying someday. You need to give yourself a deadline and make it reasonable—but also challenging! 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 Rs 2 Lakh over 12 months to pay as a down payment towards the car.”
5. Make Sure They’re Your Own Goals
It’s easy to look around at what other people are doing and feel like you should be doing it too. When you’re setting financial goals, make sure it’s the best choice for you. In other words, just because all your friends are taking out a loan to renovate their homes doesn’t mean you should.
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.
Your goal might seem difficult, but is it achievable if you push yourself? For example, if you are left with Rs 5000 after the end of each month, and you have to save Rs 2 Lakh to put down on a car, you may have to extend the timeframe to achieve the goal.
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How to Achieve Your Financial Goals?
Making a strategy that prioritises your goals is the best method to achieve your financial objectives. You’ll find that some of your own goals are vast and far-reaching, while others are specific and smaller in scope. Your objectives can be divided into three time periods:
The goal-setting process entails choosing the objectives you want to achieve, calculating the financial and other resources needed, and scheduling the time it will take to accomplish each of your objectives. It’s crucial to divide your goals into short-, medium-, and long-term objectives in order to achieve them.
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