Despite their obvious utility, setting financial goals is not always easy to do. What happens when goals are not specified is that we are tempted to save what we can without having an understanding of how it serves us.
Instead, pursue the goals of a peer you think will be similar to what you find.
Neither result will benefit you, because ultimately your goals are what you seek from life, and failures will not be comfortable, nor can you use someone else’s criteria for your particular situation.
This article covers:
- Start with one financial goal at a time
- Put down a goal value
- Put down a time frame for your financial goal
- Put down your priority
Start with one financial goal at a time
The first step is to save as much as you can with the awareness that your current income should work for your future as well. After that, you need three things to specify your financial goals: value, time frame, and priority.
Put down a goal value
The target value is nothing more than a cash tag or a price tag for your target. For example, one of your financial goals may be to buy a home. What is the value of that goal? This may not be the exact amount, as it may change over time. However, today you can achieve the approximate value of a home you envision.
This value is the minimum you need to have in order to achieve your goal.
Reaching a financial target value starts with visualizing your goal so that you can get the closest approximation of what you want in the future. The house you are looking for can be said to be worth around Rs 4 crore today. Is this information enough to start investing in this goal?
Put down a time frame for your financial goal
Let's dig deeper. Now that you've figured out when you want to own that home, you can begin to calculate the more accurate future cost of the goal. Let us assume that this time limit is five years later.
Five years later, after estimating an average 7.5% increase in real estate prices (for that area), the house would be worth about Rs 5.75 crore. This is the most relevant target value you need to work on right now.
It may very well be that the house you end up buying is neither in that location and nor does it cost as much, but you are prepared and moving in the right direction.
Put down your priority
The last part of this is to rate your target on a priority scale of 1 to 10, with 1 being the lowest priority and 10 being the highest. In addition to building your ideal home within five years, we can say that you have decided to go on a bi-annual vacation with your entire family to a new foreign destination each time.
Envelope estimates will tell you that each trip to this destination will cost between Rs 10 and 15 lakh; It is Rs 20-30 lakh a year and about Rs 1.5-1 crore in five years.
Now you have two goals for the next five years, saving for a house and for your bi-annual overseas vacations. There is a possibility that one eats into the other. Unless you prioritize, your outcome may not be achieved.
In all likelihood, the House goal will get a higher priority score of 8 or 9, compared to vacations that may be 5 or 6. If at any point you are short of how much you should save for both, you should cut back on low-priority target costs.
Conclusion
Repeat this process for all your goals to have a neat pack of goals spread across a timeline and a priority line. This can then help you achieve what you want from life in a much more efficient and accurate manner.