Setting financial goals and sticking to them is crucial to achieving success, though doing so can be challenging. Individuals who live from paycheck to paycheck, spending whatever they get as soon as they get it set themselves up for trouble as the moment there is an unexpected expenditure or emergency, they lack the savings needed to weather them. This also means that it is usually very hard for such individuals to consider retirement planning, as they leave little room for interest on deposits and returns from investments to realize.
One of the biggest keys to achieving your financial goals is to be realistic in the goals you set. For instance, if your goal is to be a millionaire by 25, whilst certainly admirable, it is not a very realistic goal. Chasing this goal involves a much higher risk as a goal such as this necessitates large moves in a short duration of time, leaving you vulnerable to downturns. Should things go south, due to the considerable resources and time spent on this, you may be left worse off than before.
It is thus important to set realistic financial goals, which are cognizant of one’s current status, one’s abilities and prospects of the broader market. One’s financial goals should never be vague or left up to chance, or dependent on uncertain occurrences such as a major job promotion or incredibly high returns on an investment. Whilst these things could happen, they are rare and should thus be thought of as additions to one’s financial planning but not essential to it.
Setting Financial Goals
Crucial to setting realistic Financial Goals is to be aware of the timeline for the goals you have set.
Additional Read: The SMART approach to your first financial plan
Short term financial goals.
Setting short term financial goals are an excellent way to ensure you meet all your financial requirements in the short term. Furthermore, short term goal setting also directly enables mid-term and long-term goal setting as, if everything is going according to plan, individuals can focus more on long term goals as they are not worried about the short term.
There are a number of things individuals can do in order to set financial goals in the short term.
1. Have a budget:
Having a budget that accounts for all financial requirements not only puts one’s mind at ease, but also helps one save up for other luxuries or invest the savings.
2. Always have emergency funds available:
It is essential to always have an emergency fund ready and at your disposal. Not only will it ensure that you do not suffer any losses, but also that you remain on track financially as you will not have to take out loans to fund the emergency.
3. Pay off your bills:
Paying off monthly bills such as credit cards will prevent the build-up of interest.
Long term financial planning
Setting long term goals is the key to successful financial planning as it ensures that one has the required savings to weather unforeseen emergencies, give time for fruition of goals and also enjoy retirement. Long-term financial planning is even more critical if one has dependents such as children and elderly parents. More often than not, long-term goals can come at the expense of sacrificing short term ones. For instance, one might forgo spending on an exotic vacation and invest the funds in suitable financial instruments instead. While they do not receive the pleasure of the vacation, their investments will have a potentially much higher payoff in the long run.
Things to focus on while setting long term goals.
1. Realistic financial goals:
It is imperative to note down clear-cut goals and work backwards so as to understand how much one has to invest in order to achieve those goals. For instance, buying a car for the family could be a goal in the next 3 years, and to achieve that, a systematic investment plan can be set up to achieve that amount.
2. Prioritize your expenditures:
It is important to look at savings as a priority, rather than what is left behind after expenses. Prioritizing expenditure can help with the same and keeping track of them will give one more clarity. For instance, one might choose to pay off their personal loan or credit card bill before they buy themselves an expensive watch, as they are a more urgent requirement.
3. Planning for the long run:
The key reason for financial planning and goal setting, is to ensure one does not have to worry about finances later on in life. Therefore, one must also consider saving for their wedding, children’s education, retirement, etc. This must be taken into account while making business and financial decisions. Apps such as Moneyfy can help you align your investments with your financial goals by providing you clear gaol-linked investment pathways.
Additional Read: Financial mistakes to avoid in panic situations
When it comes to financial planning, one can always benefit from accounting for all possible scenarios and be realistic with one’s goals. Whether you are looking for health insurance, to invest in mutual funds or require a loan to fund an expense, be they personal or for your business, Tata Capital’s Moneyfy app provides a wide range of services that help you meet your financial goals, particularly through its goal based investment feature that allows you to choose your particular financial goals, and then helps you achieve these through SIP or lump-um payments.