Money problems typically don't stem from a lack of income. If you ask most students or young earners, “What are your financial goals?” They often respond with: “I want to be rich” or “I want financial freedom.”
These statements reflect abstract dreams, not tangible goals. In this guide, we will answer:
How to determine financial goals
What is financial goal planning?
How to set financial goals step by step?
What are the various types of financial planning goals?
How do personal finance goals change with life stages?
This is a simplistic guide, especially aimed at students and beginners.
What are Financial Goals?
Financial goals are simply specific, concrete targets for achievement within a timeframe. Put differently: Financial goals tell your money where to go instead of wondering where it went.
As examples:
Save Rs. 50,000 within 1 year.
Purchase a laptop within 6 months.
Establish an emergency fund of Rs. 3 lakh.
Own a house within 10 years.
Attain a comfortable retirement at age 60.
Each of the above is a financial planning goal.
Why Is It Important to Determine Financial Goals?
Before financial goals can be established, first, understand the purpose of having them.
Importance of Personal Finance Goals
1. Gives Direction to Your Money
Goals establish a purpose of direction with your cash. The goals help to prioritise your spending and budget, eliminating wasteful spending.
2. Helps in Better Decision Making
The mind shifts away from the question of “Can I purchase this?” to “Is there an aiding functionality of this purchase to my goals?”
3. Encourages Saving and Investing
Having goals and purposes to aid your vision makes the saving and investing feel purposeful and gives incentive to do it regularly.
4. Reduces Financial Stress
When goals are established and the direction is clear, financial anxiety that typically arises gets reduced.
5. Builds Financial Discipline
Having goals makes a person learn patience and long-term thinking to reach them. This is why financial goal planning is the foundation of personal finance.
Difference Between Dreams and Financial Goals
This can be a confusing topic because many confuse goals with dreams.
|
Dream |
Financial Goal |
|
I want a car |
Buy a ₹8 lakh car in 5 years |
|
I want to travel |
Save ₹1.5 lakh for travel in 2 years |
|
I want to retire early |
Build a ₹2 crore retirement corpus by age 55 |
Goals are measurable, time-frame-based, and realistic. Finding Your Financial Goals: Identifying your financial goals breaks down into three categories.
1. Short-Term Financial Goals (0–2 Years)
These goals will always require expenses. Some examples include:
- Starting a SIP
- Setting up a vacation fund
- Owning a new smartphone or laptop
- Paying for the division or investing exam fees
- Creating an emergency fund
These are essential goals for students and beginner personal finance.
2. Medium-Term Financial Goals (3–7 Years)
These are goals that require sacrifices and additional discipline.
Some examples include:
- Purchasing a vehicle (bike or car).
- Funding your further education.
- Funding Your Marriage.
- Setting up a business.
Balanced saving and investing would be ideal for a medium-term target.
3. Long-Term Financial Goals (8+ Years)
These are financially life-changing goals. Some Examples include:
- Owning a house.
- Funding your Children’s education.
- Having a retirement plan.
- Achieving Financial Independence.
For such goals, the greatest benefit comes from compounding.
How to Determine Financial Goals
Let’s break down a practical and simple way for you to establish financial goals. We'll break that down into steps:
Step 1: Understand Your Life Stage
Personal finance goals are always dictated by your life stage.
- Student → Learning, skill acquisition, emergency fund
- Job starter → Savings, insurance, investments
- Family person → Home, children, stability
- Near retirement → Asset protection, income preservation
Don’t just copy someone else’s goals.
Step 2: Write Down All Your Goals
Grab a notebook and write down every single thing you want money for. Don’t think too hard to judge or filter yet.
For example: Phone, Holiday, Bicycle, Home, Business and Retirement etc.
This is what clarity looks like, and this is the first step in goal-based financial planning.
Step 3: Quantify Your Goals
Goals without numbers are meaningless. So, instead of “I want to be financially stable”, you should say “I want to save Rs. 1,000 in 12 months.”
For every goal, write down:
- Required amount
- Time horizon
- Priority.
This is the core of how to set financial goals.
Step 4: Classify Your Financial Goals
Not all goals are created equal.
- Must-have goals
- Emergency fund, insurance.
- Important goals
- Education, home, etc.
- Lifestyle goals
- Gadgets, holidays, etc.
Always fulfil essential personal finance goals first.
Step 5: Understand Your Current Financial Position
Before trying to chase after goals, understand where you are currently first. Ask the following questions when keeping track of personal finances:
- - What is my income?
- - What are my expenses?
- - What is the amount I can set aside each month?
- - Am I in debt?
These questions help give a reality check in order to determine if the planning is feasible.
Step 6: Align Goals with Appropriate Tools.
If using the correct financial planning tool, different goals can be achieved.
|
Goal Type |
Suitable Options |
|
Short-term |
Savings, RD, Liquid funds |
|
Medium-term |
Balanced funds, Debt funds |
|
Long-term |
Equity mutual funds, SIP |
This is the point where planning and the actual goals start to flow.
Step 7: Establish Deadlines and Monthly Tasks
Break down the larger goals into bite-sized chunks. As an illustration:
- - Target: Rs. 1,20,000 in 1 year
- - Monthly saving: Rs. 10,000
Completing and saving each month for this amount is a step in the direction of the end goal.
Step 8: Frequent Updating and Tweaking
To make your goals adaptable, they should be reviewed consistently. These goals should be reviewed:
- - Every 6 months
- - After a change in your income
- - After a significant life moment
To avoid this goal-setting being futile, your goals should be updated consistently to be in line with reality.
To assist with setting goals, the SMART rule can be applied for setting financial goals. This is a well-known method for setting goals.
SMART stands for:
S– Specific
M– Measurable
A– Achievable
R– Relevant
T– Time-bound
Common Financial Goals for Students
Students usually aim for:
- Rs. 50,000 Emergency Fund
- Skill or certification courses
- First investment via SIP
- Purchase of your laptop or phone
- Education without debt
Getting started early provides you with a big advantage.
Common Mistakes in Financial Goal Planning
These mistakes are to be avoided:
- Goal overload
- Ignoring inflation
- Mindless imitation
- Expense logging
- Goals not reviewed
Planning is not complicated; it is that simple.
How Inflation Affects Your Financial Goals
Inflation increases future costs. A target of Rs. 10 lakh today. In 10 years, it could be Rs. 18–20 lakh. While adjusting your financial goals, always keep inflation in mind.
Emotional Benefits of Financial Goals
- Goals also positively impact:
- Self-assurance
- Self-control
- Concentration
- Calmness
These benefits, beyond the money, are the importance of personal finance goals.
Financial Goals vs Financial Freedom
At the end of the day, one of the most fundamental goals of planning is attaining financial freedom. To attain financial freedom, you have to set financial goals. One does not simply wake up one day and claim to be financially free. You build it one goal at a time.
Simple Example of Financial Goal Planning
Let’s have a closer look at one simple case study. Rahul, aged 22, is a student. His-
- - Emergency fund goal is ₹50,000 and it is to be accomplished within 1 year.
- - Laptop goal of ₹60,000 to be accomplished within 2 years.
- - To have a SIP investment of ₹3,000 per month.
This is a good example of personal finance planning.
Final Checklist to Determine Financial Goals
Before ending this, ask yourself these questions.
Do you have a list of goals?
Are the goals time-bound?
Do you have a clue about the amount you need monthly to be able to accomplish your goals?
Are you being realistic?
Do your goals match the amount you make?
If your answer is yes, then you are already on the right path.
Conclusion
The first and most fundamental step within personal finance is to learn and understand how to determine your financial goals. Money without a goal or purpose is directionless; simply put, it loses all its value.
This guide tried to explain,
- - What is personal finance planning?
- - What is the importance of personal finance?
- - How to set practical financial goals?
- - What are the various goals one can have when planning?
So, whether you are a complete beginner or a student, you should simply start now, even if it is a small amount. Money that is being spent should have a good purpose. In other words, money should be working for you.
Key takeaway
Being financially strong isn’t about how much money you have, but clear goals and discipline.
DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.
