A clear and precise financial objective is directly related to achieving desired results as it helps you in making investment decisions efficiently. The selection of investment options is also based on your financial goals, if they are not clear, you will not be able to strategise a decent investment plan, leading you to undesired results.
Before understanding the steps, let’s figure out:
What is the financial goal?
A financial goal is an objective of reaching a certain place or achieving certain things within a particular period of time, which is majorly in financial terms. For example, if you want to buy a car worth ₹15 lakhs in the next 3 years, saving ₹15 lakh is your short-term financial goal.
Let’s ride through the start-to-end process of setting your financial goals.
Step 1: List down your goals
First of all, you need to list down all of the financial goals you want to achieve in your entire lifetime. Your financial goals might be, buying a house or a car, funding your child’s marriage, giving higher education to your children, and most importantly, retirement planning.
Step 2: Categorise your financial goals
After listing all of your financial objectives, you need to categorise your goals. All your financial objectives consist of short-term, long term and medium terms. Divide your financial goals into three categories. For example, buying a car within 3 years falls under the short-term category, buying a house by the end of 15 years will be considered a long-term financial objective.
- Short-term goals are from 1 to 5 years
- Medium-term goals are from 5 to 10 years
- Long-term goals are more than 10 years
Step 3: Measure your goals
Being vague about your finances might mislead you regarding the type of investment to choose. If your goal is to buy a house, you must decide how big a house you want and at what place. By doing this, you will be able to estimate the amount of money you need by the end of the date which you want. It will also help you in setting a target rate of return according to inflation.
Step 4: Deadlines
The second last step of crafting a sound financial goal is giving yourself a deadline for each of your objectives. It doesn’t mean with the time horizon you already fixed in step 2. It means a deadline to invest in your objective at regular intervals. Interval could be monthly, quarterly, semi-annually, or annually.
Step 5: Revisiting your goals
According to your current financial situation, your priorities might change, and consequently, your goals too. So, revisiting your financial objectives at a regular interval would be the last step to crafting a sound financial objective to give you and your family a stable financial future.
Proper categorisation of financial objectives not only helps you in strategizing your financial plans but also helps you be financially stable and make rational financial decisions in life. By using these above-mentioned steps for setting a financial goal, you will be able to chase your dreams freely.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com