Whether it is a football, hockey game or your life, The term ‘Goal’ plays an important role. In life setting up financial goals is as important as setting up career and family goals. Setting up Financial Goals involves different steps to be claimed before reaping the fruits of success.
What are Types of Financial Goals?
Broadly 3 types of Financial goals are identified by experts. They are:
1. Short term goals
2. Mid-term goals
3. Long term goals
Goals like buying a Smartphone, T.V, or a Computer, or Planning a vacation all are examples of Short term goals.
Goals that take a time span of around 5 years are marked in mid-term goals. Paying back personal loan EMIs, Saving to buy a Car are examples of these mid-term goals.
Goals that stretch beyond 5 years like saving for buying a house or apartment, saving for college education are examples of Long-Term Goals.
What are some examples of Financial Goals?
Planning for Emergency
Financial goals are needed to face different challenges in life. Emergency financial goals like:
- Saving for Medical expenses
- Saving to face Job Loss
- Get automobile servicing
- Accidents
Are examples of emergency financial goals.
Savings for Retirement
Planning your retirement with systematic savings is the best example for Long term financial planning. Always it is important to decide what are your retirement needs both financially and medically.
Pay off All Loans
None of us wish to carry the burden of debt throughout life. Planning to get rid of all types of debts is one of the examples of Financial Goals.
Plan to Own Your Dream House
Career/Job, Marriage and, Home are three dreams every one of us wishes to be fulfilled in style. Have a financial plan to realize buying or constructing a house.
Pay off Car EMIs
Carrying the baggage of car loans for a longer period is a burden. Set a Financial goal to pay off Car loans as quickly as possible.
Invest in Higher Education
Always cherish the dream of acquiring a new qualification or doctorate by setting aside a fixed financials.
Plan to have Fun
Of course, all our struggle is to have fun and enjoy life. Plan vacations, outings, parties by meticulously managing your finances.
What are the STEPs?
- Understand Your Life Priorities
- Always be organized never mess up financials
- Track your expenses
- Plan smart shopping
- Review and minimize debts
- Have a strong credit report
- Savings for Future
- Set Financial goals
- Plan a Spending chart
- Invest to reach your goals
SMART Approach for achieving Financial Goals
S.M.A.R.T approach is popularly advocated by all financial experts in Financial Planning. SMART- stands for Specific, Measurable, Achievable, Realistic, and Time-Bound approach.
1. Say your goal is to buy a house in Bengaluru city. Being Specific means- Goal of purchasing a 2BHK house in Rajajinagar locality.
2. Next, Associating a financial value to your goal makes itMeasurable. For example, you want to purchase a house at Rs. 90 lakh. The downpayment at 20 percent comes to Rs.18 lakh.
3. Further, Goal is Achievable means an individual with a monthly salary of Rs. 1 Lakh and monthly saving of Rs.35,000 the goal looks impossible in one financial year but if it is considered as long term plan the goal is achievable.
4. Being Realistic means a person with a salary of Rs.50,000 aims to build a multi-storeyed Bungalow in the posh locality of Dollars colony it is impossible. Unless the person gets money by some miracle or lottery.
5. The financial goal has to be achieved within timeframe this is called Time-Bound factor. For example a house costing Rs.80 lakh in the current year will cost Rs.84 lakh in the next year at an inflation rate of 5%.
Summary
Financial Planning is driven by setting proper goals. Three types of goals exists in financial planning: short-term, mid-term and long-term. In this context developing a financial plan with SMART (Specific, Measurable, Achievable, Realistic, Achievable, Realistic, Time-Bound) attributes is key for you in putting Financial Goals to action.
FAQs
How do you set good financial goals?
1. Find your inspiration
2. Examine your situation
3. Think ‘SMART’
What are the 5 components of financial goal setting?
- Make Cash Flow projections
- Define Financial Goals
- Assess Your Risks
- Define an Investment Strategy
- Refine and Plan Regularly