Saving money to purchase something you want the most is not a new concept. It is a practice followed by everyone across the world irrespective of age group. A child saves to buy his favourite toy or gaming device or an adult saves to buy a dream house or car. Everyone has a plan to buy anything and these plans can be achieved through savings.
Set a financial goal first and look for the means to achieve it. Plan how to achieve it and how long it will take to achieve that goal. Once you have understood what to achieve, you can decide the time period in which you can achieve it. You can divide your goal into short term, medium-term and long term goals.
To achieve the financial goals, you just can follow a simple and SMART (Specific, Measurable, Achievable, Relevant and Timely) strategy and get ready with a good budget to achieve the goal. You can monitor your progress, begin savings and check to see your success.
Understanding Financial Goals
Financial goals are those goals that are achievable only with finances. You should set a target to achieve these goals. Every individual has a different set of goals to achieve in life.
There are no common goals that everyone can achieve and there is no common strategy everyone should follow. Financial goals differ according to the age and situations of the individual. Below are a few examples of financial goals.
- A college student may have a goal to buy a bike or own a car.
- An employee may have a goal to clear his housing loan or save money for his child’s education and may have a plan for a good retirement
- A homemaker may have a goal to buy a dishwasher to reduce her work burden
- A businessman may have a goal to expand his business operations across the country
- Paying a credit card bill
- Paying off a personal loan
- Creating an emergency fund
- Save high for retirement or plan for early retirement
Based on the goal you have you can better understand how to categorise your goal into short term, medium and long term goals. Once you get a clear understanding of financial goals you should start arranging funds to achieve that goal.
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How to determine financial goals?
To determine financial goals, understanding your present financial condition is very significant. Here we provide you with a few steps in setting your financial goals.
1. Find out what is significant to you– Understanding your financial situation will help you to know which financial goal is more important and which can be postponed to a later date. Not all the goals are equally important, some are critical and urgent, some may not be so important. If there is any delay in achieving your financial goals then you may have to pay additional interest payments. An outsider cannot give you information regarding this, you are the best judge of your financial situation, so find out what goal is significant for you.
2. Sort out goals- Find out what is within your budget and what is achievable according to your available resources. You must take your time and determine your goals. Segregate your goals into long-term, medium-term and short-term goals. Attach your time period to your goals, in how many years you want to achieve your financial goals.
3. SMART Goal Strategy– Applying a smart goal strategy will help you to achieve your goals. Make your goals as specific as possible, measure your goals and objectives on the line of time so you can achieve them, have realistic goals which can be achieved, have only relevant goals which are related to you, put a deadline to your goals and have a timeline to achieve your goals.
4. Realistic budget- Prepare a budget amount for your goals. Allocate your funds towards your budget, keep track of the amount you are allocating to the fund amount. Do not use budgeted amounts for other expenses other than your financial goal.
5. Track your income- After all your monthly expenses are accounted for, the remaining funds available in your account redirect them to your budget so that you can achieve your financial goals.
6. Progress check- Keep monitoring your progress and make sure that you are hitting your targets. If you are not meeting your targets then it is time to rethink and reevaluate what went wrong. You will get to know your financial position only when you start checking your financial progress.
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Achieving your financial goals
Make a plan that prioritizes your goals. Achieving your goals is a systematic process, examine your goals and find out if you can achieve them only then you can get to know the practicability. Prepare a chart and categorize your goals into short term, mid term and long term goals.
Short term goal- Short term goals are those goals which are set to achieve in one or less than a year. Since it is a short period of time, allocate a small portion of funds towards this goal from your monthly income.
Examples of short term goals can be going on vacation, buying your favorite gadget or clearing your short term debt.
Medium term goals- Medium term goals can be between two to five years. Since this goal is for more than a year the amount of money also associated to achieve this goal is also more. Do not make unnecessary expenses. Increase your other sources of income.
Allocate funds towards achieving your mid term goals so that you will achieve them on time. Examples may include buying a car, paying off your debt, developing skills and knowledge.
Long term goals- Long term goals are those goals which take a longer period of time to accomplish. Generally the time period is over five years. Funds allocation will be for a longer period of time and it requires a longer commitment time to achieve this goal. Examples may include buying a new home, child’s high school education, retirement plan and others.
The process of goal setting involves deciding on what goals you want to achieve, estimating money you need and resource allocation. You will get to know how long you can expect to achieve your goals.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.