Every one of us has dreams we want to achieve in our life. Financial goals are among these dreams and the moment we enter into the workforce, we begin to worry about creating a life for ourselves where we are financially secure and stable.
But in order to achieve our goals, first, we need to set some financial goals. Whether you are starting out in your career or nearing retirement, having financial goals in place works as a great stimulant for getting you the financial success as well as the lifestyle you have envisioned for yourself.
Often, people are at a loss about how to set financial goals for their life. Here, we will discuss some great strategies everyone can make use of and set some achievable financial goals for a more secure and financially successful life.
Why are financial goals important?
Before we explore the ideal strategies one can use to set the best financial goals, let us first look into why it is important to have financial goals in the first place. Many of us prefer to stay content with our current financial status and while this may sound reasonable, it is not enough when you want to achieve goals like owning your own house or saving enough for retirement to not have to look for work after your active career years are over. This is where financial goals come in.
Simply put, goals give us targets to look forward to achieving, be it in life or with regards to our personal finances. When we know that there is a target to be achieved, we tend to align our activities to achieve the target.
Planning ahead by setting financial goals is crucial for the immediate and long-term financial success of any individual. We tend to become more realistic about our finances and align it in line with the time frame in which we wish to achieve our goals. Setting goals also helps in prioritizing our expenses and you achieve prudence when it comes to spending.
When it comes to setting financial goals, there is no one size fits all in terms of strategizing to set them. One just needs to keep a few simple things in mind and be meticulous with their plans, which will go a long way in not just helping you set your financial goals but also in achieving them. In the following paragraphs, you’ll find a compilation of the top 10 methods to set financial goals.
Ten Strategies you can use to set financial goals
Let us take a look at the top 10 strategies on how to set financial goals:
- Evaluate your priorities
When it comes to setting financial goals, the first and foremost step is to find out what is most important to you. Depending on the stage of your life and your career, you might have different priorities that will affect your financial goals.
For instance, if you are a rookie, you might be looking at say purchasing a car in the next couple of years as one of your financial goals. Again, if you are married with kids, you would want to build a corpus to find your child’s college dreams in the near future. Or you may want to buy a house or start planning for retirement. Take stock of the things that matter to you and make a list at the outset before you proceed further.
- Go over your net worth
Before you set yourself any goals, it is first important to take stock of your current financial position. When you know how much money you have, you will not just be able to plan your goals better but also work out the correct method to find the extra money you will need over the years to achieve your goals.
For this, however, you need to go over your net worth, which goes beyond your current income and takes into account the value of all your assets, liabilities and debts to give you the actual figure of the funds you have at hand.
- Sort out your goals
Every person has a number of financial goals that they want to achieve in their life but not all of them are to be achieved in the same time frame. In order to set financial goals, also distinguish between the short-term goals, mid-term goals, and long-term goals. As a simple technique, you can prepare a goal chart. List all your goals and mention the time frame in which you wish to achieve these goals.
For example, going on a vacation abroad can be a short-term goal which you would like to accomplish immediately while buying an apartment will be a mid-term goal and building a sizeable corpus for retirement will be a long-term goal. With these sorted, you will know exactly how much you need to set aside from your finances to achieve these goals at the right time.
- Create a budget
It needs no reiterating that making a budget to chart your expenses and savings is a step towards establishing your financial goals. A realistic budget is the first step towards setting yourself financial goals. A budget will create financial discipline by helping you manage your expenses and spending and also help you create the corpus you need to reach your goals. Making a budget is not a Herculean task and all it needs is some thought and careful planning.
List out your total earnings and from these, subtract your regular and other expenses, including pending bill payments. Chalk out the necessary expenses and making concessions for savings, set a limit on your maximum expenditure. The important thing to do however is to stick with the budget which will help you set and meet your financial goals with ease.
- Start saving and find a way to use the savings
If you intend to achieve your financial goals, the first thing you need to do is to make sure you have enough money to do so. If you haven’t started saving yet, it is time to do so before you plan your financial goals. But, merely saving part of your income is not enough and in order to meet your financial goals, you need to make the money grow. This you can do by investing your money.
There are various instruments and asset classes in which you can consider investing your money depending on your particular financial situation and stability. You can also seek advice from a financial planner or advisor to know about the best options available to you.
- Set a time frame
When setting your financial goals, it is important that you set a time frame for when you want to achieve your goals. This will help you streamline your goals and also make you more prudent with your spending. With a time frame in place, you will be able to prioritize which goals need to be achieved first and take the necessary steps to get the same done.
- Clear your debts
Before you go about setting your financial goals, it is important that you look at all your existing debts and make an attempt to clear them as far as possible. If you are paying EMIs on loans, be sure that you are never behind on the payment of your dues.
Try foreclosing any loans if you can so that you have fewer liabilities. At the same time, calculate what percentage of your income is being used to pay off these installments and debts. This will give you a fair idea of how much of your funds are available to you in meeting your financial goals.
- Create an emergency fund
Even before you begin to plan for your financial goals, make sure you set aside a suitable amount to meet any financial emergencies which might arise in the future. To this end, create an emergency fund that you can access when you need to. You can carve out this emergency fund from your savings by saving periodically, or alternatively, you can set aside a lump sum that you can put aside in an account or in the form of cash. Remember to dip into your emergency fund only when absolutely necessary or it will be counterproductive on your part to even set aside a fund.
- Periodically monitor your progress
Take stock of how far you have reached in terms of your finances when setting your financial goals. Periodic monitoring of your expenses, savings, investments and asset creation will help you carry out the necessary re-alignment if and when required.
- Get SMART
According to American financial planner Quentara Costa, using the ‘SMART’ strategy can help you set financial goals easily. SMART is an acronym for Specific, Measurable, Achievable, Realistic, Time-bound goals. By putting use to this principle, you will be able to create financial goals for yourself which are ‘SMART’ and will, therefore, be easy to achieve.
So here you go. Setting financial goals is all about being prudent and meticulous and with the tips we have compiled for you, achieving financial success will be easy enough for you.
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