Financial goals can be defined as a target focusing to manage your money. It includes investing, earning, and spending money. By establishing financial goals one can achieve the desired lifestyle. Few financial goals e.g. are Saving emergency funds, paying debt, etc.
5 Measures to set a Financial goal that will help to attain a wealthy and prosperous joy of life.
- Mark them on paper
- Choose a specific one
- Define your financial goals
- Set a Timeframe
- Monitor progress
Applying these measures for the 5-year financial plan can turn the table of your wealth.
Financial fitness can refer to the ability to manage the money to fulfill the current as well as long-term requirements.
To become a financial fit an individual requires to learn and practice the principles of finance.
Financial growth refers to the attribute or property of improvement in personal finance and to be more financially stable. These attributes collectively approach to take financial decisions.
Financial goals can be defined as
The intention to focus on the management of money by an individual. These financial goals are steps towards establishment and stability in finance. Financial goals are variable from person to person.
1. For a person, paying rent and buying an own home can be the financial goals
2. For parents, saving for a child’s college education can be a financial goal.
What is Financial Management?
Financial management refers to the organizing, managing, planning, and controlling the financial actions such as obtaining and utilizing the funds in the enterprises.
There are so many goals that need to be achieved but not at the same time. To complete your goals, you need to fulfill your goals according to your budget and preferences. There are 3 types of goals to achieve within budget
1. Short Term Financial Goals
They have to be completed within a year. For e.g. buying new phone and cycle, to get new furniture, etc.
2. Mid Term Financial Goals
They have to be completed with 5 year plan. For e.g. expanding skills for jobs, completing graduation, etc.
3. Long Term Financial Goals
They take more than 5-year plan to get on the floor. For e.g. fund for children’s education, owning a home, etc.
Financial Risk Management: Risk management in finance is a key important step to achieve a financial goal. Whether it’s a short-term goal or a long-term goal, financial risk management is the key essential factor to mitigate the risk involved in the financial decision. Eg. In long-term financial goal planning, if you would like to invest in a mutual fund. You must understand the risk involved in the mutual fund rather than just focusing on the benefits of the mutual fund.
Why are Financial Goals important?
Behind the success of every successful person, there is a lot of planning and hard work. No one has taste success overnight, all it requires is a dozen of goals to be fulfilled. Similarly, to be financially stable you firstly need to fix your goals. Goals let you decide your target and documents them with whole determination and effort.
Planning and drafting the strategy to achieve the defined goals can make your path easy.
Let’s have a deep study on the importance of Financial Goals:
The 5 main reasons to understand why financial goals planning is important are
1. Income Management
Managing your money will help you to utilize and save it for an appropriate situation. By managing your money you can settle your expenditures, save it for tax payments and a lot.
2. Inspect Cash Flow
Cash flow means monitor spending ways and expenses of your money. You can enhance your savings by exact spending and having a strict budget.
3. Ensures Security
Financial goals can help you to secure your family’s financial security. With having a balanced insurance policy and investments you can secure the money as well as peace in your family.
4. Raise Standards
The amount saved with the help of financial planning can protect you in difficult situations and crises. Situations don’t stay the same always, in these tough times savings done with proper planning can help you get out of the troubles.
5. Financial Health
You can achieve good health by executing the plan for financial goals and taking financial decisions. The amount saved during goals can be secured to help you to recover from any unwanted disease and problems. Money is so important to be financially healthy.
Advantages of having Financial Goals:
- Financial goals increase the decisions taking skills. Setting goals can help you to get a better understanding of financial decisions.
- Financial goals give the clarity to understand the needs of finance. It develops the ability to avoid doubts and errors.
- Financial goals focus to enhance the wealth and profit of an individual, by using money at an appropriate stage can increase the savings tendency.
- Financial goals help to manage and control expenditures by proper management of resources.
Disadvantages of lack of Financial Goals:
- Lack of financial management can increase the problem of recognizing failures.
- Due to improper financial goals one can face the problem of high expenses and waste of money on useless stuff.
- Lack of financial goals effect you to cope up with difficult situations as the situation doesn’t go with the same flow, ups and downs are part of life.
- Without healthy financial management one may also face the problems like stress, anxiety with sleepless nights.
Having good financial planning and management can help you to be always fit mentally and physically. Financial goals give you a wealthy and healthy state of mind.
How to set a financial goal?
To set financial goals follow the SMART Financial Goals (Refer following infographics for a quick overview):
During the process of setting the goal be specific. Being specific means being clear with your goals that what you want to achieve first. For example –
Want to save for a family vacation, buy a new car and bungalow, or many more. You need to start saving according to your income and budget. Suppose your monthly income is 200K Indian Rupees and expenses are 1,30,000 so you need to calculate the time and money required to save for buying a car of worth 20 lac Indian Rupees (Appx. 26860 USD)
Eg. Specific Financial Goal: Buying a new home with 70% housing loan and 30% own contribution in next 2 years.
Track your financial planning/goal progress and take action if your financial planning is out of track. You have to save the fixed amount of money required to achieve your goals. For example, you want to buy a car or a new house and decide to invest 20,000/month but forget to maintain it, this behavior can affect you to achieve your financial goals.
Eg. Measure, how you can contribute each month to achieve a 30% own fund to invest in buying a new home
Keep the focus to attain your financial goals as they will help you to live a peaceful and desired lifestyle. We say that money isn’t everything but somewhere it is acceptable that it is responsible for everything. Once you have a wealthy and prosperous life you are mostly intending to have a feeling of peace in your life.
Eg. To invest monthly contribution for attaining 30% own fund target (to buy a new home), allocate some fund on monthly basis without hassle.
Being relevant / realistic means to set goals which you can afford within your limits you shouldn’t affect your present for the sake of the future, always try to be real with your goals. Financial investment and saving must be relevant to your financial goal.
Eg. Your monthly contribution for achieving a 30% fund shouldn’t be invested or spent for other expenses or financial goals.
5. Time bound
Setting relevant goals means to have one to be fulfilled within time and within a specified deadline. Having relevant goals helps to keep focus and pursue it without any hurdles. Goals of your interests set you to be motivated and energetic that can lead to achieving it peacefully.
Eg.2 Years timeline should be set to achieve 30% fund for buying a new home.
Along with this SMART technique of setting goals, let learn about the classification of financial goals.
Following a snapshot of the SMART Goal template helps you to understand how to draft a goal.
Please do download a free excel template to draft a SMART financial goal.
There are 3 kinds of Financial Goals:
1. Short Term Financial Goals
These financial goals consider the targets to be covered within a year. They can be achieved with small savings without influencing your daily expenditures.
For example: going on vacation or paying off debt, etc.
2. Mid Term Financial Goals
These financial goals consider the targets to be fulfilled within 5 years. They can be achieved with savings more than for every day goals and by some efforts. For example: buying a home, saving for a down payment on vehicles, etc.
3. Long Term Financial Goals
These financial goals consider the targets to be achieved after 5 years. They need strong determination and hard work to complete these goals. For example savings for the college education of a child, insurance plans, etc.
How Financial Growth can be achieved?
After setting the financial goals all you need to achieve is to be financially independent. There are some of the steps to achieve your financial growth :
1. To achieve the goal within the timeframe, firstly you need to categorize it in the short term, mid-term, or long term.
Decide the term of financial goal and start planning g for the procedure to achieve it carefully.
2. Always begin with the specific goals means your goal should be worthy. They should be specific, realistic, actionable, and interesting.
3. Determination of money to achieve a goal is a very delicate step. Create the graph of the budget you will need to fulfill your financial goal and start investing wisely to complete it smoothly.
4. To be the one who achieves the financial goals without any trouble you will need to manage your expenses, earnings or additional resources in right place. If you have any long-term goals start saving monthly and calculate how many months you need to save to fulfill your goal.
5. After going all the above steps forget not to create a Goal chart with the help of all surveys, strategies, and planning you have to decide to follow. By writing or developing a Goal chart with the deadline and specific steps can help you to be consistent and aware in regards to your financial goals.
From all discussed points, Financial goals can be listed as one of the important factor to raise the standard of livings. Applying and managing financial goals in day to day life can result to achieve the desired lifestyle. These financial goals can help to attain financial fitness, financial growth, financial health and decision.
Start developing your very own financial goals to live life happily!