How to set financial goals?

Today, most people want to achieve financial freedom. If you also want to achieve financial freedom, you need to set financial goals. However, most people feel lost when it comes to setting financial goals. The road to financial freedom is only through goal setting - it will help you prioritize the vital aspects of your financial goals and give you a clear idea of why you need to save your hard-earned money and invest it wisely.

If you have been delaying setting financial goals until now, let us help you with the basics - easy steps to set financial goals. You can start it yourself or consult a financial advisor if you think it is not your cup of tea. 

Setting financial goals

Setting financial goals is an important step to achieving financial success. Below are some easy steps to help you set financial goals:

Know your financial mindset: Most people miss this crucial step while setting financial goals. Know what you want to achieve and why you want to do it. Understand how you look at money - when money comes, how you feel, and when you lose money (in an investment), how you feel at that time. It will help you pick the right asset classes for yourself.

Also, every financial action should have a reason attached to it. It will aid in bringing in motivation and perspective. For example, you may want to get rid of your credit card bills to save for a vacation instead of interest payments.

Assess your financial situation: You may want to travel to Goa for your vacation, but if you don't have enough time or the budget to go there, there is no point in planning for it. To accomplish any goal, you need to know your current situation - it will help you figure out if you can achieve it. If not now, then you need to push it further.

In financial terms, you need to know where you stand financially. You need to spend time evaluating your income, expenses, assets, and debts to determine your net worth. Looking at where you stand now financially will help set you on the right trajectory, whether your ambitions are long-term, short-term, or have yet to be identified.

Identify your short-term and long-term financial goals: Determine what you want to achieve financially in the short-term (within a year), mid-term (1-5 years), and long-term (5-10 years or more). Examples of short-term goals could be paying off credit card debt or building an emergency fund. Mid-term goals could be buying a car, saving for a down payment on a house, or planning a foreign vacation. Long-term goals could include saving for retirement, buying a second property, or starting your own business.

Create SMART goals: Creating random financial goals will not help you - you need to have SMART goals. SMART stands for specific, measurable, achievable, relevant, and time-bound. Set specific goals that are measurable, attainable, relevant to you, and have a timeframe for completion. For example, if you set a goal of buying a house - it will not help you. Your goal should be to buy a Rs 2 crore house in the next ten years. Also, it is crucial that if you want to buy a house for Rs 2 crore, you should have an income stream to accumulate the corpus or pay the required EMI.

Prioritize your goals: You may have N different goals, but given your current financial situation, you may not achieve all of them - on time. Therefore, learning to prioritize your goals becomes of utmost importance. You must determine which goals are most important to you and prioritize them accordingly. It will help you focus your efforts on achieving your most important goals first.

Create a plan to achieve your goals: Once you have identified your financial goals, the next step is to create a plan of action to achieve them. It may involve setting up a budget, increasing your income (if required), reducing expenses, investing in the right asset, or seeking professional financial advice.

Review and adjust your goals regularly: As your life and financial situation change, it is essential to review and adjust your goals regularly. It will help you stay on track and make necessary adjustments to achieve your financial goals.

For example, your goal is to purchase a car for Rs 10 lakh after three years. You are investing Rs 2.5 lakh every year and hoping your investments will generate the balance needed to achieve your Rs 10 lakh corpus. However, at the end of the first year, your investments are in losses because you invested in equity. In such situations, you must relook at your goal amount, duration, or asset and take the necessary action.

Please remember that goal setting is an ongoing process - not a one-time activity.

Conclusion

Setting goals may seem like too much effort. Cutting on expenses, deprioritizing exciting goals, continuously working to achieve them, etc. Yes, it may be too much to ask, but nothing comes easy in life. But you can rest assured that the fruits of all your efforts will be sweet.

To make the process enjoyable, reward yourself when you see progress in your journey and on completing goals. Once you have ventured into high-priority financial goals like building an emergency fund and a significant part of your retirement corpus, you can focus on more exciting ones.