Looking to Meet Your Financial Goals? Start Here
No matter how you view your future and what you wish to achieve, you need money to make it happen. When you establish financial goals, you are giving direction to your aspirations and setting down the right plan to achieve them. But first, let's define financial goals.
What are financial goals?
These are objectives or spending targets that you hope to meet over a specified period. Depending on your current life stage, you need to determine the type of goals you wish to achieve.
For instance, if you have just begun a career, you may want to start saving for a new car or bike. On the other hand, if you have a growing family, you may have a long-term goal of renting a house to buying a home.
Some other common financial goals that people generally wish to meet include saving for their retirement, funding their children's higher education, marriage expenses and the like.
How to prioritize and meet your financial goals
1. Make a Financial Plan
The first step you need to take is to set down a financial plan that prioritizes your objectives in life. When you look into your financial goals, you see that some may take a longer time to achieve while others can be attained in a short period. Once you segregate your financial goals, you can categorize them according to their time horizon. Let’s look into the three goal categories:
l. Short-term goals
These goals typically take anywhere between 1 to 3 years to achieve. For instance, you may wish to buy a new household appliance, take a vacation or choose to clear a specific debt.
Regardless of your unique short-term goals, a common short-term goal that every individual must achieve is to create an emergency fund. For instance, you may have sincerely wished you had an emergency fund when the COVID-19 pandemic arrived. If you had one and dipped into it, it's time to recharge it now. Financial experts recommend saving at least six months worth of expenses to meet your monthly basic needs and obligations.
If you are married with a family to support, consider an emergency fund that holds at least nine months worth of savings.
Look at ways to cut back on your budget to fund your emergency savings. An excellent way to save towards your emergency fund is to set up an automatic transfer or begin a Systematic Investment Plan [SIP] in mutual funds to save every month until you meet your goal. Any additional bonuses, tax refunds, or second income can be automatically put towards your emergency fund savings.
2. Midterm goals
Examples of midterm goals include:
- Purchasing a new vehicle
- Completing a degree or achieving a certification
- Clearing all your debts together
Let’s say your mid term goal is to clear all debts in your quest towards financial freedom. In this case, choose the right debt-paying philosophy that appeals to you to help you save towards your goals while paying off high-interest debt.
One strategy to pay off consumer debt is to list down your debts from the lowest to the highest interest rate. You can begin by paying the minimum amount on all but make extra payments on your highest interest rate debt. This is known as the debt avalanche approach.
Another strategy to consider – the debt snowball method-you repay your debts from the smallest to the largest without keeping the interest rate in mind. As you conquer one debt at a time, you can achieve a sense of accomplishment and go on to the next debt until you are completely debt-free. Whether you have one or more midterm goals, look at how you need to start investing today to achieve them.
3. Long-term goals
These goals typically take several years to achieve. They require longer commitments and a considerable amount of money to meet them. Long-term financial goals include:
- Buying a new home
- Paying off the mortgage on a house or property
- Saving for your children's college education or marriage expenses
- Saving your retirement
Additional read: A step-by-step guide for millennials to retire rich
Saving enough money to retire must be one of your biggest long-term financial goals. As a rule of thumb, try setting aside 10 to 15% of your income every month in an equity fund. To estimate the readiness of your retirement:
- Look into your desired annual living expenses to give you an idea of how much you may need.
- Remember to plan for higher healthcare expenses during retirement.
- Once you have this amount, subtract the income you will receive to give you an amount you will need to be funded by your investments.
- Look into your retirement assets and estimate how much you will need for your desired retirement date.
- Based on what you currently own and how much you are saving every year, use an online retirement calculator to crunch the numbers for you.
Setting down goals helps you embark on a goal-setting process to meet your goals one by one. This process can also show you the amount of money you need to achieve them and other sources if required. A goal-setting plan also tells you how long you can expect to accomplish each of your financial goals.
2. Build a goal chart
- Make a note of every financial goal you wish to achieve through the SMART strategy — Specific, Measurable, Action-oriented, Realistic, and Timelines
- Now, view each of your goals, and place them in the short term, midterm or long-term category. Create a time frame for each purpose. Also remember, this timeline could change at any time based on situations and circumstances
- Create a budget on how you choose to spend and save your money. It will help you decide how much you will need to spend on obligations, how much you need to set aside to save and how much you can use for discretionary purposes
- Track your income and expenses to know how you are spending your money in small ways that sometimes add up to a large amount and may not match your priorities
- Make a note of the amount of money you need to attain every goal. Separate that amount by the month or year
- Look at ways to achieve that goal by making small changes in your lifestyle, such as cutting down expenses, earning a second income or seeking additional income resources
- Look into a combination of ways to achieve every goal and list them down
- Prioritizing can help you achieve your incremental goals. When you achieve your goals one at a time, you build confidence and motivate yourself to attain the long-term targets with discipline
Additional read: 8 brilliant Ways to manage financial stress during hard times
Keep reviewing your financial goals regularly, monitor their progress, and if you need to make adjustments or set new goals, you will need to do so based on your life stage.
Reviewing your financial goals gives you the opportunity to ponder what you want to achieve in life and ensure you're taking proper steps to get there. To know where and how to invest, seek the assistance of an expert financial advisor who will listen to your needs and help you find the right investment solutions for every goal.
Disclaimer : ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. Investments in securities market are subject to market risks, read all the related documents carefully before investing. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents are solely for informational and educational purpose.