Financial goals or financial targets are objectives that are expressed in or based on money. Examples of financial goals include reduction of debt, wealth creation for retirement or minimization of tax payable.
Setting financial goals is important in raising funds for a specific cause. This cause may be paying tuition fees for self or children or siblings, buying a house, buying a car, going on a dream holiday and so on. Setting financial goals would force you to save money.
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SMART goals are Specific, Measurable, Attainable, Realistic and Timely. SMART goals include completing certain activities and following steps that help in reaching the set goals.
Your financial goals must be as specific in nature as possible to successfully achieve whatever you have planned. Try to include the following details while setting any financial plan:
What am I planning for?
Your goal must be measurable. Set a benchmark and compare where you stand and where you want to be. For example, just saying I want better control over finances is not measureable. You would not know what exactly is going to give you control over finances. You must define the ways of having control and this may be spending up to or less than a pre determined amount. Your goal is measurable if you say you want to control your finances by saving Rs 10,000 each month. With this approach, you have the benchmark and you can work towards it.
Have attainable financial goals. There is no point of having ridiculous financial goals that you know you can’t achieve. An example of a ridiculous goal: buying a car availing a car loan when you already have a running home loan and 75% of your salary goes towards home loan EMIs each month. Yes, your salary would be hiked each year, but you don’t know up to what extent. You don’t have control over this decision that your employer makes on your appraisal.
When your future income is uncertain, you shouldn’t make financial commitments believing you would earn a certain amount in the future. Plan and set financial goals by keeping only current income in mind.
Your goal must be realistic and attainable. Your goals must be within the realms of possibility. Realistic doesn’t mean your goals are to be easy. Your goals must pose a challenge which you must be able to overcome. Achieving goals needs effort. No goals can be achieved without effort.
Winning a lottery is not a realistic goal. Achieving financial goals completely depends on you. Don’t have goals like becoming the CEO of Google or Apple in the next one year and you are a 23 year old with a commerce degree. Set relevant goals which match capabilities.
Set the right time frame to achieve financial goals. Your goals would lose importance if you have no time frame to achieve them. Setting a time frame would help in tracking and measuring the progress made towards accomplishing goals and targets. You can have checkpoints at various time intervals to track goals regularly. Don’t have time frames of ‘as soon as possible’.
Set time frames that are sufficient to achieve financial goals. Having ridiculous goals with too short time frame works negatively, you might lose the motivation to work towards achieving goals if you happen to not meet the goal which you thought you could in a ridiculous time frame. An example of this could be: You want to go on a trip to USA by saving from your salary, within 1st year of your employment and your salary is Rs 15,000 a month, with an education loan to repay.
Short term financial goals have a short time horizon to achieve financial goals. Short term goals include purchasing furniture, minor home repairs, revamping your vehicle, going on an exotic vacation and so on.
SEE ALSO: Short-Term Financial Goals
Achieving short term goals requires ready money at your disposal. You must accumulate quick money by extensive saving and finding other sources of income like freelancing, part time tutor and so on.
Long term goals are those goals that require extensive planning. Long term financial goals may include retirement planning, funding higher education of your children and so on.
Achieving long term financial goals involves strategic investment in specific instruments that offers good returns and fits risk profile. Investing in mutual funds, stock market, FDs and so on are some of the popularly used financial instruments for achieving long term financial goals.
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