How to Set a Financial Goals?

5 min read • Published 17 Feb 25

How to Set a Financial Goals?

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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

What are Financial Goals?

Financial goals are objectives individuals create for their expenditures and savings. It can include emergency savings, retirement savings, and house savings. Financial goals can be either short-term or long-term. 

Understanding financial goals is important for adequate financial planning because setting financial goals is the first step to making an optimum fiscal plan required to achieve this goal.

To deepen the comprehension of what are financial goals, it is necessary to take a close look at the various kinds of fiscal objectives.

Different Types of Financial Objectives

Understanding the categories of fiscal objectives is important to comprehend the importance of setting financial goals.

Some people have a single, overarching goal, such as getting a pricey car or travelling 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%.

  1. Emergency Fund: Build a fund to cover unexpected expenses or loss of income
  2. Education Funding: Save for higher education expenses for yourself or your children
  3. Retirement Planning: Save for retirement to maintain a desired lifestyle after work
  4. Home Purchase: Save for a down payment and closing costs to buy a property
  5. Vehicle Purchase: Save for a new or used vehicle
  6. Debt Repayment: Pay off high-interest debts such as personal loans or credit cards
  7. Risk Management: Obtain sufficient property, health, and life insurance
  8. 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.

Examples of Setting Financial Goals

The understanding of what are financial goals cannot crystallise till we look at a few illustrations.

Listed below are some common financial goals.

  1. Settling credit card debt.

The annual interest rates on credit cards might range from hundreds to thousands of rupees. Sometimes a debt consolidation plan offers a path out of the credit card debt. A professional advisor can help individuals determine whether such a plan is good for them and also explain how it operates.

  1. Emergency Fund

Emergencies like accidents or sudden loss strike without any warning. Such situations create immediate need for significant corpus. Individuals often create a financial plan to build their emergency funds.

  1. Retirement Fund

Old age and retirement come to every individual. It is one of the most important commonly set financial goals. Individuals build a financial corpus to maintain their standard of living and meet their financial needs after retirement.

  1. Saving for the highlights of life

Individuals aspire for many things in their life. These aspirations include higher education, marriage, trips and much more. Individuals can set these goals as their financial goals and plan their savings accordingly.

Why do Financial Goals Matter?

Setting financial goals precede financial planning. While financial planning details the spending and expenditures of an individual, financial goals give the motive which guides this planned action. This has been highlighted before in the blog. This section dives deeper into the question of why is it important to set financial goals.

  • Prudence: Financial goals bring structure to spending habits. It discourages hasty, wasteful and unnecessary expenses.
  • Preparedness: Financial goals prepare us for emergencies by providing savings to fall back on during hard times. 
  • Avoiding Debt Trap: Unplanned use of credit can result in a vicious loop that leads to continuous erosion of wealth and income. Financial goals also help set a proper debt plan that can avoid the debt trap.
  • Motivation: Financial goals give individuals an achievable target to fulfil. This enables them to stay motivated. 

How to Set Financial Goals?

Individuals have a long bucket list. However, not all of them are always achievable. Here is a detailed guide for the procedure of setting financial goals.

  1. Finding Achievable Target: 

The first step of setting financial goals would be to weed out unachievable wants and narrow down the goal that can be achieved with the given financial standing of an individual. The period within which the individual desires to achieve this target must also be ascertained.

  1. Break down of cost:

 Individuals must then perform due research and figure out the total cost required to fulfil the target. The key is to not miss out on the nuances. 

  1. SMART strategy: 

Individuals can apply the SMART strategy. This strategy ensures that individuals’ can choose Specific, Measurable, Achievable, Relevant and Timely targets.

  1. Financing: 

After arriving at the total cost, the individual should consider the amount of money he already has and set a specific target corpus that they need to gather between the set period. The individual might need to adjust the period to match their financing capability.

After the conclusion of the final step, financial planning starts.

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.

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.

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

Spend Less than You Earn- Focus on Small Steps

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.

Financial Discipline- 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. The objective of this blog was to bring attention to why is setting financial goals important.

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.

Frequently Asked Questions (FAQs)

Q: What are the top 3 financial goals?

A financial goal can be anything that an individual desires to achieve given that they are financially prudent and achievable. However, among all fiscal goals, three major financial goals are on priority for any individual. They are-

  • Retirement,
  • Emergency Fund and
  • Debt Repayment.

Q: Which investing strategy is the best?

There are multiple investing strategies and thumb rules. For instance the 70/20/10 rule, 3X emergency rule and much more. The success of these strategies depends on the individual’s fiscal temperament and circumstances. A general rule of thumb would be to start investing early and regularly while maintaining focus on diversification and long-term objectives.

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