- Date : 31/10/2021
- Read: 5 mins
Setting and prioritising financial goals can be a tricky task. This article will guide you through the various steps involved and make financial planning simpler.
Setting financial goals is a pivotal step in ensuring financial freedom. You may feel like you have enough money to keep you going for the time being. However, it is crucial to establish financial goals for the present as well as the future.
What is the primary goal of financial management? The main purpose is to form a holistic financial plan that aligns with your values and goals. The goals of financial management need to be specific and measurable. In this article, we will walk you through the steps required to prioritise your financial goals.
The first thing you need to do is create a list of all you must achieve to feel fulfilled and secure in life. These needs could be anything, ranging from buying a new car to amping up your social life. Once you have a clear idea of what you want from life, you need to distribute the goals into two different categories - financial and non-financial.
Quite often, non-financial goals can also help you economically. For example, instead of spending money on outings every weekend, you can plan a movie night or games night at home with your friends.
Financial goals are specific, attainable, time-bound, measurable, and relevant goals that will enable you to realise your vision for life. Since everyone is unique, these goals can be different for different people. Here are some popular examples:
- Long-term care
- Starting a business
- Safety net
- College/higher studies
- Home remodelling
Prioritising your financial goals
It is highly unlikely that you will have an unlimited income stream coming in month after month. Regardless of how much you earn, it would be best not to spend all of it. It is vital to manage your cash flow by spending carefully and exploring financial investment planning.
Setting up financial goals is just the beginning; you need to be clear about prioritising your goals as well. You can prioritise financial goals based on three different parameters - importance, time horizon, and availability of funds.
Based on importance
Judging the importance of a financial goal is straightforward. You need to ask yourself if the goal is something you can do without or not. This might require you to evaluate the pros and cons of all your goals. For example, imagine that you find yourself in a situation where you can set money aside either for your retirement or your child’s higher education.
For some people, a retirement plan may be more important since they have nobody to depend on in the future. After all, students are eligible to apply for educational loans, but no specific loans are there to help people through retirement. In contrast, others might prefer to spend on their child’s education since they already have a safety net or someone to take care of them after they retire.
The process of classifying goals into things you need and things you can live without is personal for every individual. Remember to ask yourself the deciding question, and the prioritising should get much easier.
Based on the time horizon
When you prioritise your goals based on the time horizon, they could fall into three categories - short-term, medium-term, and long-term.
Short-term financial goals
Short-term financial goals aim to provide you with the knowledge and confidence you need for achieving larger goals. These goals are simple - such as creating a budget, adjusting spending habits, or creating an emergency fund.
The best way to establish serious and actionable short-term goals is by reaching out to an investment adviser or a financial counsellor. A professional financial goal planner can help you sort through your priorities and create a solid plan.
Medium-term financial goals
Medium-term financial goals, or intermediate financial goals, are meant to establish a bridge between your short-term and long-term goals. Such goals could include paying for a wedding, saving for a significant down payment, or paying off a heavy student loan.
Once you lay down your midterm goals, you need to plan how much you will have to save for meeting them. Your current spending habits may take a significant hit at this point.
Long-term financial goals
For nearly all of us, the ultimate long-term financial goal is to retire with comfort. Believe it or not, it is never too early to start planning for retirement. Even if you have only been employed for a few months, you should start planning for the long term. Other common long-term goals could be paying off a mortgage, going on an overseas trip, or living debt-free.
Based on the availability of funds
Finally, it would be best to prioritise your financial goals based on the money available to you at a given point in time. For instance, you may be planning to throw a lavish wedding ceremony and pay off a hefty mortgage at the same time. But first, you need to assess your financial position and look at the funds available to you. Your budget might only allow you to pay for one goal at a time.
Financial management is, without a doubt, extremely crucial for everyone, irrespective of age and gender. As soon as you start earning, you need to lay down your financial goals and work towards them. Blindly setting goals without understanding your priorities can be counterproductive. So, prioritise your goals based on different parameters.
Prioritising financial goals is the key to the healthy management of finances. Take advice from a professional and create a plan to secure your present and your future.