5 Steps To Setting Financial Goals

5 Steps To Setting Financial Goals

No matter how old you are or how much income you have, financial planning is crucial. It helps to identify your financial objectives and develop strategies to meet these. The question is how to start financial planning and how far in the future you should realistically plan.

Financial planning is similar to a long road trip. You cannot just start driving your car without a map. Similarly, a financial plan gives you the roadmap to where you want to be in the future.

Here are five steps to help you set financial goals and develop appropriate investment strategies.

  1. Determine your objectives

Before developing a plan, you must clearly determine your objectives. Do you want to buy a car or a home? Would you need to save for your children’s education? How much would you need to be financially secure post-retirement?

Determining short-term and long-term financial goals are important. It is crucial you develop specific, measurable, achievable, relevant, and timely (SMART) objectives. This will help you chart out the next step clearly.

  1. Prioritize your goals

Every financial goal must quantifiable and prioritized. Meeting all your goals simultaneously is not possible, which is why you need to prioritize these. Most experts recommend three key goals; retirement planning, emergency funds, and repayment of debts. All these must be stacked through a progression of one objective to another. It motivates you to meet tedious goals with the excitement of reaching objectives that are more enjoyable.

You must start early even if you are able to save only a small amount. Furthermore, investment discipline is important to take benefit of the compounding effect. One way to achieve this is to invest in systematic investment plans (SIPs) offered by mutual funds (MFs). Such plans allow you to invest a certain amount at regular intervals in your preferred MF schemes.

  1. Develop a realistic budget

To ensure you are able to meet your financial objectives, a budget is important. It must include more than just your monthly expenses. Motor insurance, property taxes, and other such expenses are not incurred monthly but need to be met and must be budgeted.

Consider your income and follow the 50/20/30 rule for budgeting. This rule states that 50% of your earnings must be on essentials, 20% should be used for financial priorities, and balance 30% towards lifestyle expenses.

  1. Automate your savings

You may not always have money to save. However, you must develop a habit and set up an automated debit from your account towards investing. In addition to discipline, it ensures you do not forget to invest in stocks, debt, MFs, or other products.

  1. Monitor your progress

Developing a financial plan is not the end but just the beginning. It is important you constantly monitor your progress and make necessary modifications to ensure you remain on track. Additionally, you must monitor the returns on your various investments. Investing in equity, MFs, or debt is not a one-time thing and must be monitored to make accurate buy and sell decisions.

The financial planning process is iterative and not a one-time solution. Furthermore, it is not only important for individuals who are close to their retirements. It is recommended you start early, invest, and update the plan as required. Make it a point of having a balanced investment habit by having equal proportions of investments in equities and SIPs. It is essential to have a right mix of investment portfolio involving equities and SIPs to maintain a sound and stable financial record. Start planning today and secure your future.

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