The Power of Setting Financial Goals: Why They Matter
How many times have you heard this from your parents or friends:
- When will you get a good job?
- When will housing prices be low enough to buy?
To these questions, most people get anxious and contemplate their decisions. If you are someone who is trying hard to build a happy future for yourself, it’s time you take some serious action. Set goals and stick to them.
After all, what gets measured gets managed. Financial goals act as stepping stones on your way to achieving a certain milestone, like earning more income or cash flow.
For this reason, your objectives must be SMART:
S- Specific
M- Measurable
A- Attainable
R- Realistic
T- Time-bound
The Necessity of Being Financially SMART
Every day, people want more money.
You are tired of living paycheck to paycheck, paying off student loans, and wondering about property values and inflation rates. You want to be able to take care of yourself and your family but can’t seem to figure out how to do it.
About 71% of Indians in a survey stated that financial security is their number one goal.
How do you attain financial security?
It’s simple: by knowing and accepting the importance of financial goals.
Financial goals help you plan for your future, save money, and make smart financial decisions. But before you start planning, you must know your financial goals.
For example, setting up an automatic transfer into an investment each month or saving in an emergency fund.
To begin with, understand the difference between savings and investments. Look at it from this perspective:
- With savings, you cannot expect much more than what you started
- With investments, there is always room for growth and profit
Different Types of Financial Objectives
Financial goals aren’t a one-size-fits-all approach.
Some people have a single, overarching goal, such as getting a pricey car or traveling elegantly. At the same time, some people have several more specific, long-term goals.
The most important thing is to pick one and stick with it, no matter what sort of financial goal you choose!
Here, we are writing it down for you since it has been proven to increase the chances of achieving the goal by 42%.
- Emergency Fund : Build a fund to cover unexpected expenses or loss of income
- Education Funding : Save for higher education expenses for yourself or your children
- Retirement Planning : Save for retirement to maintain a desired lifestyle after work
- Home Purchase : Save for a down payment and closing costs to buy a property
- Vehicle Purchase : Save for a new or used vehicle
- Debt Repayment : Pay off high-interest debts such as personal loans or credit cards
- Risk Management : Obtain sufficient property, health, and life insurance
- Income Generation : Gain money through making investments and adding new sources of income
Note: These are broad financial objectives, and particular situations may differ.
To get the most out of your financial plan, prioritise and tailor your financial objectives depending on your unique circumstances. You should also see a financial expert or planner.
Financial Planning and Goal-Based Investing
The key to success is good planning.
This is especially true when it comes to financial planning and budgeting. A good plan allows you to make informed decisions about your money and helps keep you focused on achieving your goals through positive choices and actions.
There’s a reason why goal-based investing is even more powerful than it sounds: it can lead to better outcomes.
Goal-based investing is a potent strategy that aids in keeping your focus on the things that really count. It enables you to prioritise your financial requirements and match the goals of your portfolio.
Focus On Small Steps – Spend Less than You Earn
You can start small with something as simple as reducing your expenses by 10%, a handy tip mentioned by Anmol Das, Head of Research at Teji Mandi (Motilal Oswal Financial Services).
Differentiate your needs and wants. Categorise your spending into wants like food, entertainment, and shopping and needs like rent, utility bills, healthcare, etc.
Follow a budgeting rule to recognise your spending and saving patterns.
Know for Sure – Willingness to Accept Risk
It is the amount of volatility you can stomach, and it’s different for everyone.
If you’re a conservative investor, you’d rather protect your principal than make bigger gains. On the other hand, if you’re an aggressive investor, you’re willing to take more risks in the hope of making even more money.
With Great Power Comes Great Responsibility
How does this phrase apply to your finances?
It’s up to you to create goals that will help you achieve the life you want. Your financial goals should be based on what matters most to you.
To help get started, here are three questions to ask when setting a goal:
- What do you want?
- Why do you want it?
- How will your life be better once you achieve this goal?
Here’s where prudent financial decisions make a difference. Achieving financial independence requires you to be disciplined and consistent with your money management practices.
It’s not about luck or winning the lottery, but more about being smart with your money on a daily basis over an extended period of time.