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A 5-Step Approach to Deciding Your Financial Goals

IndianMoney.com Research Team | Posted On Wednesday, July 03,2019, 09:09 AM

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A 5-Step Approach to Deciding Your Financial Goals

 

 

A lot has been said on financial management and how to achieve it. To achieve your life’s goals and transform them into reality, you must first evaluate what life goals are. Life goals differ across people and converting them into reality requires financial discipline and understanding of these goals. Here are some handy tips on how to decide financial goals.

Is Your Goal Linked to Money?

You may have many goals in life, but not all of them are linked to money. Make a list of life goals that are linked to money. For example, if you want to take a sabbatical or want to start a business next year, you must plan ahead and create a fund to support your goals. These kinds of life choices need considerable financial backup. Good financial planning helps you get there.

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A 5-Step Approach to Deciding Your Financial Goals

How Much Money Does Your Goal Need?

Finding out the capital required, might be easier for some life-goals than others. For example, if you want to buy a car or an apartment, then you can easily calculate the amount required. An online EMI calculator can help you get a clearer picture on the total cost of the loan and the monthly EMIs required to fulfill your dream. However, computation of some long-term goals like funding retirement, marriage or education of children isn’t straightforward.

To save an adequate amount of money for each of these life goals, you must understand multiple factors like inflation, rising lifestyle expenditures, your income, rate of return on various investments and your own ability to save. You must seek professional help from a financial advisor to figure out how much money you need to fulfill your goals. You can categorise your goals as short-term goals and long-term goals and evaluate amounts to achieve them within the given timeframe.

See Also: Importance of Financial Planning

When Do You Need the Money?

The next step is finding out, when you need the money. Once you are aware of your goals and you know how much money you need to achieve them, you will need to set tenure to save up for it (Time-Frame). Generally, a large sum of money needs more time, whereas a smaller amount needs lesser time.

You can only put your plans to action when you have the necessary amounts. So, some proactive thinking is necessary at this stage. If you want to generate better returns within a short time, you can choose to invest in equity mutual funds. This way you will not only invest money, but also earn inflation-beating returns.

See Also: Who is a Financial Planner?

Can You Save or Afford to Save Up for It?

Some financial goals just cannot be compromised. For example, saving money for retirement is one such goal. Some life goals need you to consider whether you can afford them or not. Suppose you want to purchase a luxury apartment, then you must save a considerable amount, just for the purchase.

You must prioritize some of your financial goals over others. These goals can be prioritized by considering life-value and financial objectives. Many of us cannot fulfill all life goals, due to income constraints. So, it is important to prioritize some goals over others.

See Also: Steps in the Financial Planning Process

Create a Budget and Make Investments:

The final step is to decide where to invest the money. Investing money can be an easy solution and helps diminish the gap between the shortfall and the money required to achieve the life-goal. For example, you require an amount of Rs 1 Crore to lead a blissful retirement. However, you are only able to save Rs 70 lakhs over 20 years. In this case, you must invest smartly to get the necessary amounts. Investing in equities helps get the extra amount, within the given time. You could earn much higher returns than FDs, getting to life goals real fast. Do remember that equity offers higher returns, but at higher risk.

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