How to set financial goals?

When we ask someone, what are your goals then they probably reply that they want to go on a world tour or to buy a car or to save for their child’s higher education, etc. However, these are dreams and not goals, as goals need some start point and end point. Even if you define the start and end point it wouldn’t be able to be termed as financial goals, as money is not attached to the same. So, what are financial goals? Financial goals are those which have a timeline and value attached to it.

Let us take an example to understand it better. You wish to fund for your child’s higher education which is 10 years from now for which you would need Rs. 50 lakh inflation-adjusted. This is a financial goal. So, financial goal is a goal which has a timeline and money attached to it and also it must be reasonable and achievable. So then, what does reasonable and achievable mean? Reasonable and achievable means financial goals which are not exorbitant in nature. Say, for instance, you wish to own a BMW in the next year or say you wish to buy a palace. Yes, of course, you can have these as your financial goals but only if you have such funds in place with you and capacity to invest the suggested amount. It is to be understood that the financial plan or any of the investment products are not magic or something. You need to be reasonable to get the best out of it.

Now the question is how to set a financial goal? It is best to divide your goals between needs and wants. Needs are those goals which are a must. Say for example your child’s education, emergency corpus, retirement are some of the needs. On the contrary, wants are those which are not that important to achieve. For example, upgrading your car, home renovation, etc. This means that if the needs are not getting fulfilled then wants can be deferred to any future date. However, that is not the case with needs. Needs cannot be deferred. You cannot defer child’s education over international vacation.

So, it is important to differentiate your financial goals between needs and wants and then further prioritize them as per intensity. Remember emergency corpus is the first step towards a financial goal, unless and until provision for the same is made, going ahead would be worthless. It is important to have your financial goals on paper. Probably having a financial plan in place would be a better option.