The concept of Personal Finance varies from person to person, as everyone’s situation is unique. Your bills, rents, debts, and lifestyle are all different from your neighbour’s.
Your specific problems can be answered by financial planning that will take care of your financial lifestyle.
First and foremost, you have to define your financial goals.
What is a Financial Goal?
The target to aim for, while managing money is called a financial goal, and it involves saving, spending, earning, and also investing.
In order to create a budget, creating a list of financial goals is essential, and these financial goals must be measurable, specific, and time oriented.
Types of Financial Goals
Following are the different types of financial goals:
Short-term Financial Goals
The financial goals that can be achieved within a year are called short-term financial goals. A new television, a computer, or a family vacation are some of the examples.
Mid-term Financial Goals
Mid-term goals are the ones that take about five years to achieve. These goals are a little more expensive than everyday goals, but are achievable with discipline and hard work. Paying off a loan, a credit card balance, or saving for a downtime payment on a car are some mid-term goals.
Long-term Financial Goals
Long-term goals are attained in a time period of more than five years. Saving for a college education or a new home are examples of long-term goals.
If still, you are not clear about your financial goals, here are some examples:
Creating Emergency fund
We know that life is very unpredictable. We have to be prepared for any major crisis or emergency, always.
Whatever be your situation, the goal to save for emergencies is the first to be set.
Different situations that can be considered as emergency conditions are, medical expenses, job loss, accidents, broken appliances, car repair etc.
Emergency funds come to rescue when something unexpected and expensive happens. The amount of money saved can vary.
Paying off Debt
Paying off of debts is a common financial goal. Owing large amounts of money gives an uncomfortable feeling. Since you have to pay off a specific amount, it can be considered a financial goal.
The best way to realize this goal is to stop borrowing, in addition to making monthly payments. If the debt goes on increasing, you will be pushed away from your goal.So stay strong and diligent.
Save for retirement
This is a goal you should work towards, your entire life. It is a type of long-term investment and you must start it early.
You must have a clear picture in mind about your retirement needs. Then you can go for a suitable plan to save for your future
Own a home
Owning a home is one of the largest financial goals to aim for. If you can save up a sizable down payment, you can get a reasonable home.
College education
College education is very costly nowadays. Paying off student loans has now become a modern long-term goal.
Plan for fun
You need to reward yourself for working hard and saving diligently. Doing so, you can practice self-discipline and goal setting. The “fun” to aim for could be a vacation, a big-screen TV, or anything you wish for.
Reasons to set financial goals
You can know your target
By setting financial goals, you can know what you are trying to achieve and what is your definition of success. This is unique to you and your situation. Having an end goal helps in making right decisions.
You know how much to save
It dictates how much you need to start saving and investing to achieve your goal.You can track your progress towards that quantified goal and make the required adjustments. Financial planning becomes easier.
You can develop strategies
Depending on your financial goals, your strategies to achieve them will differ. If you have a short-term goal, you just need to save a bit extra each month. But with long-term goals, you might need to combine a number of strategies to increase your income, cut expenditure, and invest in stocks or shares to grow your money. You can work on the strategies after deciding your financial goals.
Shaping your career choices
Your career making decisions can be shaped well by setting financial goals. For ambitious goals, you have to decide how much time you can afford to take off, how to get a promotion or salary increment. You may need to start your own business, which though risky, can be lucrative in the long-term. If you know your financial goals very well, your career planning complements your financial planning.
You stay focused
Setting financial goals helps you to stay focused. You can stick a picture of one or more of your goals on the wall by your desk. This will keep you away from the temptation of splurging and remind you of your hard work.
Creates a sense of achievement
Achieving your financial goals may take a long time. Setting goals is the first step and it in itself, is an achievement. You should congratulate yourself for that.
Financial security
If you have specific financial goals, you would not spend more than what you should.. Setting financial goals is essential for a firm financial footing. It helps you to live comfortably within your means, reduces your financial troubles and lets you save for the future.
You should, by the end of the year, review your goals, update them and track your progress. So plan ahead for a secure future.
