Goal Setting is the most important step in Personal Financial Planning. It can also be described as Gate Way to the Financial Planning. Goal setting is a powerful process for thinking about your ideal future, and for motivating yourself to turn this vision of the future into reality. The idea of setting goals helps you to realize where you are today & where you want to be in life. By knowing what you want to achieve in your life, you know where you have to concentrate more and put your efforts. If you want your money to work for your goal then you need to tell it what to do. If you do not know what you want your money to do, you will find your money going to waste month after month. It is rightly said “ Don’t work for money, let your money work for you”. Knowing exactly what are your Goals & Dreams is the first step in the process of financial planning. Goals and Dreams provide focus and direction for the financial planning process.
Setting financial goals is something that would catch the interest of every one in this country. These days, having financial goals is more important; especially that almost everyone in the country is experiencing financial difficulties. It is important that you arm yourself pieces of goal setting advice when setting financial goals. In this way, you can better determine if you are setting realistic goals or you are simply day dreaming about having a crores by the end of the year/s. Take note that the financial goals you are setting are meant to be achieved, and not to be left as mere dreams. When setting financial goals, it is important that you give yourself time to sit down and think. Try to ask yourself how much money you would want to have in your hands or in the bank after a certain period of time. You will also need to think about the things you will need to do to achieve this kind of objective. Aside from these, you must also think of the things that can help you determine whether or not you are drawing near to your goal or you are straying farther from it. One thing that you will need to be sure about is whether or not you are really serious about achieving a certain financial goal.
1) Deciding what is important for you to achieve in your life.
2) Separating what is important from what is irrelevant.
3) Motivating your self.
4) Building your self-confidence, based on successful achievement of goals.
Steps for Setting Financial Goals
1) Identify and Listing Down the Financial Goals:
The most important goals and dreams are:
► Buying a Dream House
► Home Renovation
► Providing for Children’s Education
► Providing for Children’s Marriage
► Annual Vacation / Tour abroad
► Buying Vehicle
► Buying Holiday Home/ Farm House
► Comfortable Retirement
► Corpus for Starting New Business
► Gifting and Charity
2) Categorize the Goals:
Break each financial goal down into, short-term (less than 1 year), medium-term (1 to 3 years) and long-term (5 years or more) goals, which will make this process easier.
3) Prioritize the Goals:
Break each financial goal down into High, Medium and Low Priority; which will help you to decide which is more important and which can be delayed for future.
SMART Goals:
A useful way of making goals more powerful is to use the SMART.SMART usually stands for:
S - Specific: Your Goal should be specific, clear and simple to understand. Instead of setting a goal to buy a house, set a specific goal to buy 1 BHK at Mumbai.
M - Measurable: Goal you set should be measurable. If it is not measurable, than it is not manageable. When you measure your goal, you stay on track.
A - Attainable: Goal should also be attainable. It should not be far from reach or impossible.
R - Realistic: Your Goal can be realistic only if you truly believe that it can be achieved. Setting unrealistic goals disturbs the entire financial planning.
T - Time-bound: Your goal must be completed in certain time frame. A Goal without any time frame is of no importance.
The first step in personal financial planning is controlling your day-to-day expenses so that you can do the things rightly & gives you financial freedom and helps you reach your goals in time. This can be achieved by proper Financial Planning, Budgeting, Saving More for future, and investing in the right instrument for the future, depending on time horizon and risk appetite, are all important aspects of financial planning, but those things mean nothing if you don't have specific goals that you're trying to reach. In order to live a happy & joyful life, you need to have specific & stated goals so that you can plan accordingly.
If you ask me what is the right time to prepare a financial plan, I would say 10 years back. The second answer is as soon as possible. It's never too late to develop a plan. However, the earlier you start to plan, the better for you and your family. Early planning can ensure you financial freedom when you retire, help you to save more money, and improve your quality of life. Goal setting is a major component of financial planning without this you cannot proceed ahead.
This article first appeared at myiris.com on 6th Septembet'2010
