Financial Goals

What are Financial Goals?

Financial goals are nothing but targets that you set for your finances. We as individuals set financial goals all the time without even realising it. It can either be short-term, mid-term, or long-term, but it is necessary for financial goals to have a fixed time frame. 

Secondly, financial goals need not always be about earning, saving, or investing money. 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. 

Importance of Financial Goals

Now that you’re somewhat aware of what financial goals are, let’s take a look at how important they can be. 

• They can help you understand money better

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.  

• They can improve your financial situation 

Setting financial goals can also better your finances significantly. And they make it easier for you to achieve the major milestones in life.

• They can influence your actions positively 

Setting financial goals will also help you adopt a more disciplined approach to saving and investments over time.

Characteristics of Financial Goals

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; SMART - Specific, Measurable, Attainable, Relevant, Time-bound. 

Here’s a quick look at what these characteristics entail.  

• Specific    

In order to be a proper financial goal, it must first be specific. For instance, wanting to save up ₹20,000 by the end of 6 months from today is a good example of a specific financial goal.

• Measurable 

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. 

• Attainable

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 much better manner, but can also save you from disappointment. 

• Relevant 

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, you’re most likely to give up midway. 

• Time-bound 

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 in some much-needed financial discipline. 

Types of Financial Goals

Since financial goals are usually categorised according to the time that it takes to be achieved, there are three major types - short-term goals, mid-term goals, and long-term goals. Let’s take a look at these three types in detail. 

• Short-term goals 

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 goals 

Financial targets with a time frame of more than a year and less than about 5 years are usually categorised as mid-term financial goals. Achieving mid-term goals is usually harder than short-term goals due to the quantum of money involved. However, they’re still easy to attain with a little hard work and discipline. 

• Long-term goals 

And finally, 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 your child’s higher education is a good example of a long-term goal. 

Examples of Financial Goals

Financial goals tend to vary from one individual to another. Some of the most common goals that a large number of individuals tend to have are as follows. 

• Creation of an emergency fund 

An emergency fund is really crucial. It can help you stay ahead of the curve by letting you be 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 fund requirements easily without much of a hassle. 

• Saving up for retirement 

The post-retirement phase is a very important part of your life. Saving up for your retirement is a long-term financial goal that requires immense financial discipline and can take years, if not decades, to attain. The earlier you start, the better since you get a major head start, which can make your job a whole lot easier. 

• Clearing off debt 

Debt can weigh your finances down. Paying off your debts as early on in your life as possible can help you attain financial freedom more quickly than you can imagine. Also, clearing off debt should be among the list of financial goals for students. It can help them enter their adulthood without having their student loan hanging over their head at all times. 

• Saving up for a family vacation 

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. 

Setting Financial Goals

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. 

• Know what you need the money for 

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 towards setting financial goals. It makes them more meaningful and pushes you towards achieving them. 

• Assign a target date 

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.

• Set a priority to your goal 

If you have multiple goals, which most individuals tend to have, setting a priority for each one can help make financial goal management easier. Set a high priority for goals that involve saving up for your retirement or your child’s education. And for goals like getting a new television or a car, you can make do with assigning a lower priority. 

Conclusion

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 make you a better person in the process.