Financial Goal Setting
Set Financial Goals to Achieve Your Dreams
Each one of us has different aims in life, such as buying our own home, going on a world tour, financing children’s education, etc. However, wishful thinking will not get you what you want; you need to stand up and take control of your finances. Figuring out your objectives and matching them with timelines are the keys to financial goal setting. Your financial goals are specific and unique to a number of factors related to you, like your age, your interests, current financial situation, and your aspirations. Based on these you need to develop your goals and establish a plan to achieve them.
Set Your Financial Goals
You must write down all your financial goals. By writing, the scope of your goals becomes clear. Whether your goals are to get out of debt or to buy a house, you should involve all your family members to get some idea of their individual financial goals. Combine this list to determine a set of common goals. Consider a few guidelines while setting your goals:
- Recognize your goals. These could be saving for a down payment for your new home, creating funds for the education of your children, paying off unsecured debts, saving for the proverbial rainy day, or putting together a vacation fund to go on that world tour you have always dreamed of. Making specific goals gives a direction to your efforts.
- Create a spending plan. Take a long hard look at your income and expenses. Eliminate unnecessary expenses and look for innovative ways to save your money.
- Do your groundwork well. Research the best ways to make your money grow. Read money magazines, investment guides or search for investment information on the Internet.
- Assess your progress at least once every 6 months. This will help you ascertain if your plan is working. If you are dissatisfied with the progress on a specific goal, examine your approach and incorporate the necessary changes in your goal setting plan.
Create a Timeframe
Every goal has to be matched with a time line. This will motivate you to plan and achieve your goals. You can break up your goals into three time frames.
- Short term goals: Generally, these are goals to be achieved within a year. The exact time line for the short term goals depends on the date the goal has to be achieved, the total estimated cost and the corresponding amount of savings needed for that goal. Saving for a family holiday or buying new clothes, a new piece of furniture etc. are examples of short term goals.
- Intermediate-term goals: These goals are executed over a period of 1 to 5 years. Examples of intermediate goals are: buying or replacing your car, paying off your unsecured debts, or saving an amount towards the down payment of your home. Again the time line is based on the amount to be saved for achieving the specific financial goal.
- Long term goals: These are goals which will take more than 5 years to achieve. Think of them as goals that cannot be achieved within a few years even if you diverted all your energy towards them. Saving for the college education of your child or for your retirement fund are examples of long term goals. Once you have set your goals and matched them with their respective timelines, work out a plan to achieve your financial goals.
Here are a few tips to help you realize your financial goals:
- Set aside at least 5% to 10% of your salary every month towards saving.
- Create and contribute about two months of your salary towards an emergency fund to take care of sudden expenses.
- Save at least a 10% of your annual income and invest it for meeting your long term goals.