Setting financial goals

How to Set Financial Goals

Though setting financial goals might seem to be
a daunting task but if one has the will and clarity
of thought, it is rather easy. Try using these tips.

1. Be Clear About The Objectives
Any goal (let alone financial) without a clear
Read more
objective is nothing more than a pipe dream. And
this couldn’t be more true for financial matters.
It is often said that savings is nothing but
deferred consumption. Therefore if you are
saving today, then you should be crystal clear
about what it is for. It could be anything like kid’s
education, retirement, marriage, that dream
vacation, fancy car etc.
Once the objective is clear, put a monetary value
to that objective and the time frame. The
important point at this step of goal setting is to
list all the objectives, however small they may
be, that you foresee in the future and put a value
to it.

2. Keep Them Realistic
It’s good to be an optimistic person but being a
pollyanna is not desirable. Similarly, while it
might be a good thing to keep your financial
goals a bit aggressive, going out of the line will
definitely hurt your chances of achieving them.
It’s important that you keep your goals realistic
in nature for it will help you stay the course and
keep you motivated throughout the journey.

3. Account for Inflation
Ronald Reagan once said – “Inflation is as
violent as a mugger, as frightening as an armed
robber and as deadly as a hitman”. And this
quote sums up the best what inflation could do
your financial goals.
Therefore account for inflation whenever you are
putting a monetary value to a financial objective
that is far away in the future.
For example, if one of your financial goal is your
son’s college education, which is 15 years
hence, then inflation would increase the monetary
burden by more than 50% if inflation is mere 3%.
So always account for inflation.

4. Short Term vs Long Term
Just like every calorie is not the same, the
approach towards achieving every financial goal
will not be the same. It is important to bifurcate
goals in short term and long term.
As a rule of thumb, any financial goal, which is
due in next 3 years should be termed as short
term goal. Any longer duration goals are to be
classified as long term goals. This bifurcation of
goals into short term vs long term will help in
choosing the right investment instrument to
achieve them.
More on this later when we talk about how to
achieve financial goals.

5. To Each to His Own
The journey of setting financial goals is an
individualistic affair i.e. your goals are your own
goals and are determined by your want to
achieve them. A lot of times we get on the
bandwagon of goal setting only to realize later on
that it was not meant for us.
It is important that your goals are actually your
goals and not inspired by someone else. Take a
hard look at this step at all the goals you’ve set
for after this step, you will be on the way to
achieve them.
By now, you would be ready with your financial
goals, now it’s time to go all out and achieve
them.