Financial goals are nothing but the financial targets that you set for yourself. In fact, you may have set financial goals all the time without even realising it. These goals can either be short-term, mid-term, or long-term. In any case, it is necessary that they have a fixed time frame.
Secondly, financial goals need not always be earning, saving, or investment goals. As a matter of fact, they can also be about spending as well. For instance, setting yourself a goal where you try to restrict your spending to just 20% of your total earnings is a good example.
To learn more about different financial goals and how you can plan for it, read on.
Since financial goals are usually categorised according to the time that it takes to be achieved, there are three major types - short-term, mid-term, and long-term. Let’s take a look at these three in detail.
Financial targets with a time frame of less than a year are typically known as short-term financial goals. Saving up for a new television is a good example of a short-term goal since it can usually be achieved within a span of a year, if not a few months.
Mid-term financial targets are ones for which you may need more than a year but less than 5 years. Achieving mid-term goals is usually harder than short-term due to the quantum of money involved. However, with a little hard work and discipline, they’re easy to attain.
Lastly, financial targets with a time frame of more than 5 years are categorised as long-term financial goals. These are the hardest to achieve and require immense financial discipline. Saving up for a child’s higher education is a good example of a long-term goal.
An emergency fund is really crucial. It can help you stay ahead of the curve by keeping you prepared for any kind of situation that arises in your life. An ideal emergency fund should have 9 to 12 months’ worth of your annual income. This way, you can tide over your emergency requirements easily without much of a hassle.
The retirement phase is a very important part of your life. Saving up for your retirement is one of the long-term financial goals that requires immense financial discipline and can take years, if not decades, to attain. The earlier you start, the better, as you get a major head start, which can make this undertaking a lot easier.
Debt, when not paid on time, can weigh down your finances. In case there is an unexpected delay in your debt repayment, a little goal based financial planning can help you get back on track.
Not all financial goals have to be centred around being financially responsible. You can even have a financial goal where you save up for a fun activity like a family vacation. And since family vacations require large sums of money, often running up to lakhs of rupees, you can set a target and start saving up towards it.
The cost of education, and not just higher education, has increased over the last few years. While saving up for is one of the financial goals an individual can have, it may not be feasible for everyone. Here, opting for a student loan can be the ideal solution.
However, like any credit, the student loans need to be paid off within the agreed tenure. Thankfully, student loan offers allow students to repay their loan either after their course starts or after their education ends.
Regardless of when the repayment starts, it is one of the most common mid-term as well as long-term financial goals for people everywhere. This is because clearing student loans can help them enter their adulthood without any debt
The use of credit cards has increased in the past few years, but it requires financial responsibility from your end. This is because if you regularly fail to pay your credit card dues, in the long run it can be detrimental to your financial wellness.
This is why it is a common practice to have credit card bill payments as one of the mid or short-term financial goals. By accounting for your credit card payment in the short term, you can secure your financial future naturally.
Buying a house, whether for investment purposes or for fulfilling a dream, is among the most common financial goals that many in the country and across the globe share.
Whether you get financing or save up for it, planning for the long term is crucial in this case. As such, including it is one of the common long-term financial goals that many aspire to accomplish.
Running a successful business means securing a hefty corpus for any and all needs. Whether it is for working capital or business expenses, the funds for it are usually acquired after wealth accumulation over a period of time.
Moreover, many people across generations have aspirations to become an entrepreneur. To accomplish this aspiration, building the corpus to get started is a worthwhile goal to set. In fact, it’ll surely make the process of starting a business a lot easier.
Now that you know what financial goals are, let’s take a look at how important they can be.
Setting financial goals can change how you look at finance and money as a whole. It can help you understand how investing small sums periodically can add up over time.
Setting financial goals can also improve your finances significantly. And they make it easier for you to achieve the major milestones in life.
Setting financial goals will also help you adopt a more disciplined approach to saving and investments over time.
Effective financial goals have certain distinct characteristics that make them stand out. These characteristics can be represented with the acronym ‘SMART’. Each letter in the acronym represents one characteristic of a financial goal– Specific, Measurable, Attainable, Relevant, and Time-bound.
Here’s a quick look at what these characteristics entail.
In order to be a proper financial goal, it must first be specific. For instance, wanting to save up ₹50,000 by the end of 6 months from today is a good example of a specific financial goal.
Financial goals must be quantifiable in nature. Whether it is to save up a particular amount of money or repay a debt obligation that you have, financial goals should always be measurable.
Another major characteristic of a good financial goal is attainability. A financial goal that is realistic and attainable can not only motivate you in a better manner, but also save you from disappointment.
Financial goals must be relevant to your life. Only when they are relevant will you want to work hard towards achieving the goal. If it is not relevant to you or your loved ones, the possibility of you giving up on them midway is higher.
Financial goals must also have a finite time-frame associated with it. Financial goals that have no specific time frame for completion are harder to follow up. Setting a time period for your goals can help prevent procrastination and can bring about much-needed financial discipline.
Many individuals tend to think that setting a financial goal is a tedious exercise. However, that’s simply not true. In fact, all that you need to do is follow the tips outlined below.
To set a proper financial goal, you would need to first determine what you’re going to use the money for. Giving your goals a purpose is the first step as it makes them more meaningful and pushes you towards achieving them.
The next step is to assign a target date. It can be anything from a few months to a few years. Giving your goal a time-frame allows you to plan your finances and take relevant actions. It also makes it easy for you to categorise them into short, mid, or long-term goals.
If you have multiple goals, which most individuals tend to have, setting a priority for each one can help make managing them easier. Set a high priority for goals that affect your standard of living such as saving up for your retirement or your child’s education. And for goals that are not immediate needs and have no immediate impact have a lower priority.
Now that you know all about financial goals, go ahead and start setting some for yourself if you haven’t already. Setting goals and achieving them one after another can improve your financial health considerably and can improve your overall life in the process.
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Good financial goals are those you set using SMART principles. These enhance your financial wellness in the long run. Examples of this include repaying debt, saving for a house/car, creating a tuition fund, etc.
The approach to setting financial goals, in general, is similar for every type of goal. You have to make sure that the goals address your short-, mid-, or long-term needs. You can even use a financial goal planner to envision what you may need.
The top thing you need to remember when it comes to planning your financial goals is to take an assessment of your current financial standing and set your goals accordingly.
Having short-, mid-, and long-term financial goals is important because it improves your financial standing and helps you accomplish your dreams.