Kolkata, October 12: We have all heard of the importance of setting a financial goal when it comes to planning one’s finances. What exactly is a financial goal and how does one go about setting one? We take a look.
- Be specific: When setting a goal, it helps to be specific. For example a goal like ‘save for retirement’ or ‘save for a foreign holiday’ means nothing in itself. Instead say that you want to save Rs 5 lakh for a foreign holiday or Rs 5 crore for retirement. While it is not possible to set exact goals, some ball-park calculations will help you get started. For example, if your monthly expenses are Rs 75,000 now and you are 35 years old, it is possible to calculate how much you will need in your first month after retirement by factoring in inflation. This will help you arrive at the retirement corpus you would require. When a goal is specific, you have an idea of how much you need to save for that goal. This gives you something to work toward and also makes you easier to track your progress.
- Be realistic: This is another important aspect of goal setting. Let us say you are saving up for a down payment of a house. Set a realistic budget. For example, if you can afford a house worth Rs 70 lakh, a house worth Rs 1.2 crore will be much above your budget. For the more expensive house, you need to set aside a higher down payment. Take a look at your income, your savings and other aspects so that your financial goal setting is realistic. Only if the goal is realistic, will you be able to achieve it.
- Prioritise: Since we all have a limited budget, it is important to assign a priority to each goal. For example, saving for your retirement or for your children’s education will be goals that have a top priority. However, goals like foreign holidays and purchasing a second car can be postponed or modified.
- Set time-bound goals: Based on the duration of your goals they can be short-term, mid-term or long-term. Certain goals like saving for retirement or for your child’s education may already have a fixed time frame. However, in case you want to retire early, the time frame will be shorter. For other goals like buying a house or car or going on a vacation, the duration needs to be set smartly. The goal should be of sufficient time duration so that is achievable but not so long that it loses its purpose.
- Set goals that are relevant: Most of the goals people set could be similar but it does not mean they have to be the same. Ask yourself what you want to achieve in life in the next 5 years, 10 years or beyond that. Once you have a better understanding of what you want, you can have a clearer understanding of your goals. For example, you may want to retire early, set up your own business or buy a luxury car. If you set goals that are relevant, you will feel more motivated to work towards them.