Goal Setting is the most important step in Personal Financial Planning. It can also be described as Gate Way to the Financial Planning. Goal setting is a powerful process for thinking about your ideal future, and for motivating yourself to turn this vision of the future into reality. The idea of setting goals enables you to realize where you are today and where you want to be in life. By knowing what you want to achieve in your life, you know where you have to concentrate more and put your efforts. If you want your money to work for your goal then you need to tell it what to do. If you do not know what you want your money to do, you will find your money going waste month after month. It is rightly said " Don't work for money, let your money work for you". Knowing exactly what your goals and dreams are, is the first step in the process of financial planning. Goals and dreams provide focus and direction for the financial planning process.
Setting financial goals is something that would catch the interest of every one in this country. These days, having financial goals is more important; especially when we have limited resources and multiple goals. In this way, you can better determine if you are setting realistic goals or you are simply day dreaming of accumulating crores by the time you retire. Take note that the financial goals you are setting are meant to be achieved, and not to be left as mere dreams. While setting financial goals, it is important that you devote time with yourself and think. Try to ask yourself how much money you would want to have in your hands to meet particular goal. One thing that you will need to be sure about is whether or not you are really serious about achieving your financial goals.
Steps for Setting Financial Goals
1) Identify and Listing Down the Financial Goals:
The most important goals and dreams are:
- Buying a Dream House
- Home Renovation
- Providing for Children's Education
- Providing for Children's Marriage
- Annual Vacation / Tour abroad
- Buying Vehicle
- Buying Holiday Home/ Farm House
- Comfortable Retirement
- Corpus for Starting New Business
- Gifting and Charity
2) Categorize the Goals:
Break each financial goal down into, short-term (less than 1 year), medium-term (1 to 3 years) and long-term (5 years or more) goals, which will make this process easier.
3) Prioritize the Goals:
Break each financial goal down into High, Medium and Low Priority; which will help you to decide which is more important and which can be delayed for future.
A useful way of making goals more powerful is to use the SMART. SMART usually stands for:
S - Specific: Your Goal should be specific, clear and simple to understand. Instead of setting a goal to buy a house, set a specific goal to buy 1 BHK at Mumbai.
M - Measurable: Goal you set should be measurable. If it is not measurable, than it is not manageable. When you measure your goal, you stay on track.
A - Attainable: Goal should also be attainable. It should not be far from reach or impossible.
R - Realistic: Your Goal can be realistic only if you truly believe that it can be achieved. Setting unrealistic goals disturbs the entire financial planning.
T - Time-bound: Your goal must be completed in certain time frame. A Goal without any time frame is of no importance.
The first step in personal financial planning is controlling your day-to-day expenses so that you can do the things rightly and gives you financial freedom and helps you reach your goals in time. This can be achieved by proper Financial Planning, Budgeting, Saving More for future, and investing in the right instrument for the future, depending on time horizon and risk appetite. These are all important aspects of financial planning, but these things mean nothing if you don't have specific goals that you're trying to reach. In order to live a happy and joyful life, you need to have specific and stated goals so that you can plan accordingly.
If you ask me what is the right time to prepare a financial plan, the answer is as soon as possible. It's never too late to develop and prepare a financial plan. However, the earlier you start to plan, the better for you and your family. Early planning can ensure you financial freedom when you retire, help you to save more money, and improve your quality of life. Goal setting is a major component of financial planning without this you should not start your financial journey.