How to Set your Financial Goals?
Want to have a sorted-out approach to your financial life management? Start by identifying and setting down your financial goals. Unlike career and professional goals which are set for the short to mid-term period, financial management requires you to think long and hard. Financial goals in life is the difference about what you own and what you owe. Once you set your financial goals, you are in charge of your money as well as your life.
Think about your entire life and which responsibilities you are expected to shoulder. Then think about what desires you have with respect to finances? After penning down all your responsibilities and desires, narrow down the list to the absolute must-haves and must-dos.
Having a short and clear goals list is important so you can prioritize which goal comes first and which one comes second and so on. Otherwise our list can go on and on without serving any actual purpose.
The Magic of Compounding
- Starting early gives one a huge advantage over others who start late when it comes to investments. ‘Compounding’ works wonders for a person’s finances in the longer run so start planning (and investing) as early as possible. If you have children and if your finances so permit, start investing for them from a young age so they have a huge corpus waiting when they grow up.
- If you set aside Rs.1000 per month and invest Rs.12000 per annum at 9% per annum interest rate when your child is just 4 years old, you will have a corpus of Rs.600000 when he is 22 years old. If his education or marriage figures in your financial goals, as it should, you could have several investments of such regular yet small amounts over the long run to meet the expenses you would need to incur then.
- Taking inflation into account, the amount needed to meet expenses needed for higher education and marriage parties would be quite a considerable amount.
Get your Family on Board
Talk to your spouse and children about the chosen financial goals and ask them for their input as well. Do they share your goal or would like to improve it in some way? People typically avoid such ‘important and serious discussions’ but the result can be serious too.
Naresh was a corporate executive earning a handsome salary. His wife, though a housewife was financially savvy and well-organized. Naresh, on the other hand was carefree and irresponsible. He wanted to live the good life and was over-confident of his abilities.
He never saved a single paisa and spent everything he earned. His wife, Madhu, tried to save money away in bank deposits and mutual funds but she had to withdraw all of it at some time or the other since he would find one way or another to spend it all.
Madhu’s financial goal was to save for their children’s education and their old age but she didn’t see any point in discussing any of it with Naresh since he would neither agree not postpone his immediate enjoyment for anyone or anything.
Whatever your goals might be, you have a better chance of achieving them if you write them down. As you list your goals, divide them into three categories: short-term, medium-term, and long-term.
- Short-term goals might include buying a new computer, or paying off credit card debt.
- Medium-term goals could include making an investment like buying a car or going back to school.
- Long-term goals might be to buy a home or retire with enough money to live comfortably.
Try to set SMART goals. These are goals that are Specific, Measurable, Achievable, Relevant, Trackable. Make sure you prioritize your financial goals. Which ones are the most important to you? Work toward achieving these goals first.
Just like other aspects of life, finances too need to be managed in an organized and planned manner. Knowing where one is going and what one intends to achieve is basic to setting up a healthy financial balance sheet.