Determining financial goals is required in every phase of our lives, from college days to retirement. Financial goals refer to savings, investments or spending goals you want to attain over a specified time. The stage you're at usually dictates the kind of goals you want to accomplish. For example, the financial goals for someone planning to expand the family could be aiming to change from renting a home and purchasing one. The goal of saving for a college education and investing for your retirement is also popular financial goals. In this blog, we will discuss how to determine your financial goals.
Steps to determine a financial Goal
Set A Budget and live by it
Making a realistic budget and adhering to it is a significant financial goal. Without having a budget, you'll struggle to reach your objectives. Like professional athletes who keep detailed logs of their workouts and accomplishments to understand their performance better, you can utilize your budget to evaluate your financial success and setbacks, and determine any areas in your plan that may require modification. A budget also gives you a sense of control of your financial position and the courage to persist even in financial hardship. A Budget will help you control your financial goals and makes it easy to save money to achieve your goals. Here are a few of the steps that will help you in setting your Budget-
Also, while categorizing your Budget, it is advisable to consider the 50/30/20 Rule, which will help you track your Spending. Here's the diagram that will help you with the Budget breakdown-
Avoid creating goals that are too extreme.
It's easy to feel that you have to meet all of your financial goals simultaneously, get rid of hundreds of rupees of debt, and limit your spending discretion to help you save more. However, making goals over your budget could cause you to regret it if you do not reach those targets. "One of the biggest issues in setting goals is the 'all-or-nothing thought," Castro says. "It's an extreme mentality, and when we practice things such as that, we set the stage for ourselves to be unsuccessful as we don't consider the many grey areas in life." If you aim to save 5000 per month, but you've not even begun saving Rs. 1000 a month, it's challenging to make necessary changes to evaluate your budget and ensure you have 5000 to save every month. Setting the achievable objectives in your particular situation, even if they appear small, like saving just 1000 per month, helps you develop good financial habits that will last for a long time. You will be motivated to achieve your current goals and then progress to larger ones.
While it is crucial to save for retirement, creating an emergency fund for rainy days and for contingencies is also essential. What amount do you put into each account?
Emergency savings are the savings you have to save for a substantial amount. For example, suppose you're single and are saving funds to cover three months of your non-discretionary expenses such as rent, food, insurance, and utilities. If you're married or have dependents on you, consider setting aside six months of non-discretionary expenses. The funds you set aside are required to be available at all times.
Savings for retirement
In the same way that you're putting money aside to cover emergencies, you must save for your retirement. Both are crucial for your overall your financial health . If, for instance, you were to lose your job and didn't have funds for an emergency, you may have to pull the funds from your retirement account, which could trigger penalties, taxes, and various other adverse consequences. In addition, when you don't have enough savings to retire, you might not be able to quit working whenever you'd like to or even completely change your life when you can. So while determining your financial goal, it is essential to do savings for Emergencies and Retirement.
Live Below your income
There are a lot of misconceptions regarding the concept of living within your income. For example, living below your income means that you should never spend more than what you make. Therefore, if you're paying less than or equal to the amount you earn each month through your job or additional sources of revenue, then you are way below your means. Being a little tight isn't mean that you cannot spend money on things you cherish to have a good time in your life. Instead, suppose you're looking to secure your financial future while having a nice dinner now and then. In that case, it is possible to make deliberate financial choices that include saving money, establishing a budget, and cutting down on expenses that aren't necessary. Thinking about the lifestyle changes you need to live within your income could be daunting. However, living your life below your income is imperative to maintain financial stability.
Apply a SMART Goal
To make sure your financial goals are clear and reachable, each individual should be:
The financial goal should be clear and specific. Otherwise, it will be difficult and you won't be able to focus on your efforts or feel truly motivated to achieve it. When drafting your goal, try to answer the five "W" questions:
- What to accomplish?
- Why finanvolved?
- Where located?
- Which resources are involved?
It is considered to have measurable financial goals, which will help you track your progress and stay motivated. Analyzing the progress enables you to stay focuing your deadlines, and feel the happiness of getting closer to achieving your goal.
The financial goals you have set for yourself need to be realistic and attainable to be successful. Also, your goals should stretch your abilities but remain possible. When you put achievable financial goals, you may be able to identify previously overlooked opportunities that can help accomplish your financial goals.
After Achievability, it is essential to have relevance in what you want to achieve. It will help you ensure that your goal matters to you and aligns with other relevant purposes. That is to make sure that your financial goals drive everyone forward.
Every financial goal should be time-bound; you should have a deadline to focus on. This is the essential part of the SMART goal criteria that helps avoid everyday tasks from prioritizing your longer-term financial goals.
Monitoring the Progress
After preparing your financial goal, every person needs to measure their progress. Your progress will help you achieve your financial goals and make decisions about what types of actions our progress and which methods are most effective.
To conclude, we can say that all these steps will help you incorporate your financial goals and help you implement your overall strategy for accomplishing these goals. All these steps will help you determine your financial goals and meet the milestones you have set for achieving your long-term goals.