How to Set Financial Goals?
Trouble to find and set your financial goals? Don’t know what is a financial goal or have a question on why set financial goals and where to start? Here is the article on “How to set financial goals” to help you.
Why financial planning is important
No doubt, financial planning is important and the foundation stone of a financial planning is setting the goals. In my experience, when start planning finances, most of the people facing troubles to set correct goals. Such troubles are the result of ignorance on factors that influencing to set the goals.
This article is the result of my efforts to identify most important categories that required more attention and time to identify and create a well set of personal financial planning goals.
How to create a successful financial plan?
Success of the personal financial plan entirely depends on the goals! What are those goals? How could I identify the goals? Work with right categories to identify the goals. But, how you would know what are those categories right? So here are the top personal financial categories to work with. This would help to identify strengths and weakness with each categories that would help setting financial goals worksheet.
Identify income and assets
Assets have major roles in budgeting along with liabilities. One must identify all the assets at the beginning of personal financial planning. We generally have assets like properties, automobiles, collectibles, house, investments, bank or other fixed deposits, savings, jewelries, income from salary, side income such as income from rent etc.
Recording current assets are the first steps in personal financial planning. This would help to identify current financial strengths.
Identify liabilities and expenses
When dealing with liabilities, need to put bit more efforts. Because, all the liabilities that spanned across various sub categories needs to be identified and recorded. Here are the best methods to correctly identify and record the liabilities.
Long term liabilities
These are the liabilities such as auto loan, personal loan, education loan, loans against investments, life insurance, home mortgages, home equity loans.
Recurring and regular expenses
Recurring home expenses like home rent, utility expenses i.e. water, telephone, gas, internet, cable along with regular home expenses such as grocery etc.
Personal expenses
Finally, personal expenses like toiletries, cosmetics, personal drugs, dry cleaning, clothing purchases, personal grooming, gifts, entertainments, vocations and travel, publications, club memberships, charitable expenses and other expenses etc.
Once done with recording assets and liabilities, the first mile stone is met. One should have exact idea about their income, net worth etc to decide further goals such as new home, repayment of loans, retirement etc.
Financial goals and strategy
The time one have exact idea of their income and expenses, there would be either extra or no cash in hand at the end of each month and year. Saving extra cash or bit more money than current, thus come as the first finance goal. There are various methods to save through various smart money activities such as cutting down unnecessary expenses or making more income through possible ways. Learning and applying smart money management techniques will help a lot on this space.
In other way, someone may have plenty of extra money in hand. This would help to plan future goals such as retirement, holiday, buying home, starting business etc, depends on person to person.
Not only that, identifying exact net worth and expenditure help to personal budget in a structured way to save and add more money to the savings, which helpful to achieve the goals fast.
Destroyers of financial freedom
Learn about the most common destroyers of the financial freedom. These are events and when occurs, it would affect badly to the financial status of a person if not planned well in advance to avoid such instances. Here are those wealth destroyers and how to plan to defend those instances.
Health risks and medical insurance
Self and family safety comes first! Accidents, sick and causalities can happen at any time they are uninvited guests to all. In a financial plan, there should be sufficient plan to meet emergencies and the person must be ready always to face such unexpected situations. Medical insurance is the best way to defend against these risks to self and family.
Asset risks and household insurance
These are risks to the home and household items such electronics, furniture, jewelries etc. from various calamities such as fire, natural calamities, war, burglary etc. Protect your home and households with proper household policies.
Debt risks and term insurance
Having loans such as home, personal, auto, student loan etc? Or have debt from banks and financial institutions, protect self with necessary term policies against loans and self. This is the best option to avoid discourteous and financial burdens to the family members later.
Auto risk and auto insurance
Having an auto insurance with third party policy is a good defense against accidents and related errors.
“Prevention is better than cure”. Personal finance is not only identifying the future goals to attain but it also about protecting the financial status through identifying possible risks too.
Income loss risk
Income loss risk occurring due to job loss or business loss etc. This needs to be prevented with and emergency fund, that needs to be created. An amount equal to 12 months expenses would give comfort to face income loss. However, having 24 months equivalent give more confidence.
How to set investment goal?
Savings and investment are the two important components in a personal financial plan. Budgeting commonly meant for saving money from various sources and through various activities to invest or set aside to utilize for achieving pre-defined financial goals. Here are some common goals people generally set as part of their financial planning.
Kids education goal
Education is of course costly. Kids are our major wealth. Each parent in this world working for the betterment of their kids and family. Being a loving parent, you must have a goal to meet the expenses of children education and marriage.
Having a separate investment portfolio with various assets that able to meet the goal would be a best option. Visit and good financial advisor to get proper advise on how to and how much and where to invest to achieve such goals.
Retirement goal
Another most important financial goals of the common people, known as focused goal. This goal can be achieved only by planning well in advance. As per the standard and lifestyle, one should decide how much money would make he or she to lead a retirement life. Again, creating a separate investment portfolio with best assets for long term would help to achieve this goal without much troubles.
Miscellaneous goals
Depends on people, there are various secondary goals such as yearly pilgrimage, holiday plan, build another house, build a farm land, financial goals for a business, charity etc.. Whatever it is, based on the goal, separate portfolio needs to be created with right assets and managed.
Types of financial goals
The major difference between focused goals and secondary goals are, focused goals cannot be dropped because a personal financial planning is totally based on focused goals. Secondary goals can be dropped at any time because it doesn’t have any base relationship with your financial planning and totally depends on person to person.
Conclusion
Yes, personal financial planning meant to provide better financial situation throughout your life. This is starting by setting goals and working to meet that goals. It can be anything, but a separate plan required for each goal than combining activity to achieve all the goals with a single portfolio. However remember the financial goals are not only long time focused but there are intermediate financial goals such as buying a car etc., for that the activity should be separately done.
Do you still looking for any further information to work for set your goals?