What, Why & How of Financial Goal Planning
What are Financial Goals?
Savings, spending targets, and investments one hopes to achieve over a set & specific period in the future. The type of goals one wishes to achieve completely depends on the stage of life.
For example, if one is in college, it may be an easy short-term goal like saving for a new phone or something more challenging like saving for a bike. At the same time, a person with the responsibilities of a growing family would have a long-term goal of buying a bigger house or saving for a child’s college education.
No one is alien to the idea of saving money to purchase some commodity or service that is currently financially unviable.
To do financial planning, one needs to ask the following questions
- What is it that one wants to achieve?
- How long will it take to complete it?
- What steps need to be taken to succeed?
The next step is to figure out what can be achieved on a short-term, mid-range, and long term basis.
Why do you need to Set Financial Goals?
As the saying goes, “if one fails to plan, then one is planning to fail”. Those who look ahead in life and have a concept about what they’re looking to do with their money put a plan into motion and establish some good habits; those people are the ones who tend to remain secure & sustainably progress. It’s not just the statistics that matter in setting the financial goals, but the process itself. It’s about establishing good habits. If one adheres to consistent saving patterns, one has set himself up for victorious financial freedom.
Types of Financial Goals
- Making a budget and living by it is an effective way to know one’s financial limits.
- Paying off credit card debt since the interest charges (on credit card accounts) eat through so much cash that could have been used for other objectives.
- Saving an emergency fund with three months of liquidity is a minimum standard to fix an unexpected car repair, pay for hospital bills, and other unforeseen circumstances.
- Saving for retirement by setting aside money each month to grow your retirement portfolio.
- Developing skills to improve your income by finding a mentor who can provide advice and input or working in a part-time job, attending conferences and workshops, and networking in your profession.
- Save a down payment for a home, with a 20% down payment being the gold standard for a suitable home loan.
- Starting a business will include creating a business plan, finding seed money, and sticking to a monthly budget within.
- Saving for Child’s future education expenses.
- Saving for a new car or vacation.
How to set Financial Goals
1. List out what matters to you. From the practical and urgent to the whimsical and fantastic, write down everything for inspection and evaluation.
2. Goals can be of three broad categories:
- Short-term goals (under one year: reducing debt and starting an emergency fund)
- Mid-term financial goals: (Two to five years: insurance policies)
- Long-term goals (over five years: Retirement plan)
3. Implement a SMART- goal strategy by making certain goals Specific, Measurable, Achievable, Relevant, and Timely.
4. Determine how much money will be required to reach your goal and separate that amount by the month or year.
5. Create a realistic & practical budget. Get a firm handle on cash flows, expenses, and incomes, and then plan to address the goals.
6. Once the above steps are done, the budget will have a handful of leftover money. Irrespective of the amount, direct it into a separate account specifically meant to address the top items in the list of priorities.
7. Monitor the progress by making sure that you are hitting specific landmarks and making course corrections. Annual financial planning can be an opportunity to formally review your goals, update them, and review your progress since last year.
8. It’s best to set incremental goals, prioritize, and achieve them. Thereby you gain confidence in your discretion & decision-making.
9. Use all the resources available to help stay on course (e.g.:Financial apps).
10. There’s no issue in celebrating success when you achieve your financial goals, either short-term, mid-term, or long-term.
One may probably not make perfect, linear progress toward achieving any financial goals, but what’s important is to remain consistent with the plan. In case of slow down on the path, don’t get bogged down and give up. Instead, just get up, dust yourself off & get into action again as soon as possible. Sometimes, one will have to create a new plan from scratch to get through the difficult period or meet with an advisor who can help you set financial goals, budget, and saving. That’s the beauty & benefit of annual financial budgeting: One can review and update the plans and monitor progress in achieving them while battling life’s challenges. In the process, we realize that both the little things that we do daily and the more significant things we do every year and over the decades will help us achieve our financial goals.
We hope this articles answers all your questions about Financial Goal Planning. If you need any assistance on Investments, Insurance, Financial Goal Planning or How To Invest In Mutual Funds Feel free to contact Wealth Baba. We will try to help you out in the best possible way.