Setting up of short-term, mid-term and long-term financial goals is an important step. This step is focused on becoming financially secure. If you are not working for anything specific, there is a high probability that you will end up spending more than you should. Therefore, situation might arise where your retirement becomes a problem. You might also get stuck in a vicious cycle of credit card debt. Most of the goal planning is focused on peaceful retirement. Concept of financial goal planning means setting up of financial goals and developing plans to achieve those goals.
Short-term goals means working to achieve goals within 1-3 years. Some examples of such goals include building an emergency fund or investing for vacation. Medium-term financial goals include buying a car or SUV. Long-term financial goals take longer i.e., 10-15 years or even more. Some examples of long-term financial goals include retirement, purchasing home, or saving for child’s education and marriage. Individuals are required to invest for financial goals on the basis of time horizon and risk appetite.
Financial goals like children’s marriage, buying house are high-value goals. Therefore, to achieve such goals, there is a requirement to invest your money over a longer period of time. Financial goal planning can help in deciding where to put money. You can choose best investments on the basis of risk appetite and stay on track to make your dreams a reality. Simply put, financial goal planning can help you in getting more organised with your money.
Process of goal planning
Setting target date
It is of utmost importance to be specific, even if you adjust date over time. If you have a child who will be heading to college soon, you need to have a target date for college savings goal. If you plan to go on a vacation, you know what timeframe you're working for. Therefore, setting the date helps in making right amount of investment and in the right instrument.
Prioritizing financial goals
Differentiate between critical, need, or want , Individuals are required to tag their goals on their goal sheet: critical, need, or want. This is important so that they know what to fund first. For example, there is a short-term goal to build up an emergency fund, it can be tagged as critical. However, another short-term financial goal is to trade a car, which is running fine. Now, this is a want. If individuals see that there is a shortage of funds in one month, they’d know where to put money.
Paying the debts off is one of the most important and common financial goals. No one is comfortable to know that they owe large sums of money. Because the amount that an individual owes is already a specific number, paying them off can easily be converted into a financial goal. Best possible way to make real progress in this area is to stop borrowing. If an individual continues to add to his/her debt, that individual will only get pushed away from the goal. Therefore, it is of utmost importance to stay strong and diligent.
Saving for retirement
Retirement planning is a goal an individual tends to work for his/her entire life. This is the perfect example of long-term investment. Therefore, it is of utmost importance to consider exactly the retirement needs. Remember, it is always beneficial to start early. The benefits are visible in the long run.