Financial Goal Setting - Four Steps There are no hard and fast rules for implementing a financial goal

setting plan. The important thing is to at least do something as opposed to nothing, and to start NOW.
Here are four steps you can apply to any financial goal setting exercise: Step 1: Identify and write down your financial goals, whether they are saving to send your kids to college or University, buying a new car, saving for a down payment on a house, going on vacation, paying off credit card debt, or planning for you and your spouses retirement. Step 2: Break each financial goal down into several short-term (less than 1 year), mediumterm (1 to 3 years) and long-term (5 years or more) goals; which will make this process easier. Step 3: Educate yourself and do your research. Read Money magazine or a book about investing, or surf the Internet's investment web sites. Step 4: Evaluate your progress as often as needed. Review your progress monthly, quarterly, or at any other interval you feel comfortable with, but at least semi-annually, to determine if your program is working. If you're not making a satisfactory amount of progress on a particular goal, re-evaluate your approach and make changes as necessary. Sometimes when people write down their goals, they discover that some of the goals are too broad in meaning and nearly impossible to reach, while others may seem smaller in scope and easier to achieve. Break your goals down into three separate time categories. B y placing a time frame on your goals you are motivating yourself to get started and helping to allow you the chance to succeed. Just remember that you can adjust the time frame whenever you want to. Long-term goals (over 5 years) are those things that won't happen overnight, no matter how hard you work to achieve them. They make take a long time to accomplish (hence the reason they are called long term goals), so give yourself a reasonable amount of time, that are based on your best estimates of what it will take to achieve them. Examples of long-term goals might include college education for a child, retirement plan or purchasing a home. Whatever the case, these goals generally require longer commitments and often more money in the end. Intermediate-term goals (1-5 years) are the type of goals that can't be executed overnight but might not take many years to accomplish. Examples might include purchasing/replacing a car, getting an education or certification, or paying off your debts like credit cards etc. (depending on the amount).

Short-term goals (within one year) generally take one year or less to achieve, based on the date the task is needed, the total estimated cost, and the required savings. What are your goals? To find out, you need to make up a list, decide which timeline your goal fits into, detail the steps necessary to achieve your goals, then take action toward reaching those goals. Its that simple. You might be wondering where to start with your financial goal settting plan. These are some basic tips to help you in making the best choices for you. After looking at these tips, it is best for you to go out and do some research to find the method(s) that suit you best. Begin by taking 5%-10% out of each pay check and put it in a savings account Look into different investment strategies such as IRAs, stocks, RRSPs, mutual Funds, personal investments etc. There are many more and all can assist you in short and long term goals. Start making a budget for yourself that leaves you with some extra money and follow it Use your coupons that is why they are there. It seems like small savings, but add together you could save 20-30 dollars at each trip to the market Shop around for bargains Do not live outside of your means Work with a credit counselor to get help in lowering your monthly expenses and get rid of your debt These are just some of the things that you can do when beginning your financial goal setting plan. The steps to setting goals successfully dont change, only the methods that you use to go about it. For example: when it is career wise, work to get noticed; for relationships, work on maintaining your intimacy or getting it back; in financial goal setting, work to save and invest money etc.

Whats a smart financial goal? Getting rich isnt a goal; its a wish. A goal needs certain characteristics to have power. I like the SMART goal-setting system, which I was first introduced to as a new hire at my one and only Big Corporate Job back in the day. Ive encountered it in a few different venues since then, and always found it useful. The SMART system teaches that goals must be:
y

Specific. Remember how I said getting rich isnt a goal? For a goal to work, it needs to be specific. Dont just aim to save for retirement. Do your homework and figure out how much you need to save to have the income youll want when you retire. Now you have a number, and that number can be the basis of your goal. Measurable. Once you have a specific goal, you need to know how well youre doing at achieving that goal. I can look at my retirement accounts and see exactly how much progress Ive made towards my specific savings target. The same is true with other goals, like saving for a vacation or buying a house. The more specific you can be in your goal, the easier it will be to measure your progress. Attainable. Id love to write and publish a book. Doing so is on my bucket list. I can easily fantasize what it will be like to hold my own finished book in my hands, and display it proudly on my bookshelf. Even better if it hits the bestseller list! Ill go on Oprah! Ill get a six-book deal! Ill be the next J.K Rowling! Thats not a goal; its a daydream. My writing goals are more concrete and attainable. They build on what Im doing now. Each time I attain a goal, like selling a story to a particular magazine or being able to quit my day job and write full time, I get closer to being able to write that book. When the time comes, Ill get real specific about what book I want to write and what steps Im taking to do it. Then it will be a goal. Realistic. Notice that Ive talked here about my savings goals and my professional goals. Goals need to be realistic and related to your real life. Id love to walk on the moon someday, but doing so isnt a goal of mine. Its totally unrealistic. If you want to make radical changes to your life, thats fine. Goals can help you do that. But they need to start with small, specific, attainable steps. Timely. A goal needs a timeframe. Without it, you cant really measure your progress. When you make a goal, give yourself a concrete timeframe you want to accomplish it in. Saying, I want to save $5,000 for a trip to Argentina over the next 18 months is a much more attainable goal than saying, I want to save for a family vacation. I know exactly how much I need to save, and how much time I need to do it in. Figuring out how much to save each week becomes a simple math problem, and I can easily check my progress as I go along.

Why do I need goals? Goals are incredibly powerful tools. J.D. wrote the other day about all the creative and flexible ways he uses the data he collects from tracking his spending. I kind of feel the same away about goals. Theyre useful for a diverse array of things, from getting clarity on what you want to staying motivated for the long haul.

The process of goal-setting is a great opportunity to learn more about what you value. You get to see your dreams and aspirations take shape as clear, specific intentions with concrete, achievable steps to get to them. It helps you focus on what really matters to you, sorting your genuine aspirations out from your daydreams. Once youve set the goal, figuring out how to progress towards it and achieve that progress is another learning opportunity. Its a chance to learn more about how your goal can be achieved and make some choices about how youll get there. Lets say you want to save for retirement. Once you know how much money you want to save and how many years you have to save it, youll want to lay out a plan to do so. This is your chance to learn about your companys retirement plan options, investigate IRAs and study the stock market. Goals act like a map. Once you have your goal in place and you know how you want to get there, you can check your actions against it. Whenever you go over your monthly spending, for example, you can check your progress on your goal. When youre in a shop considering a purchase, you can ask yourself if it furthers your goal. Your goals can guide you to financially sound choices. Finally, goals help me stay motivated. Save 10% of my income might be a good idea, but its not a very sexy goal. Its easy to stray from that principal in the face of tempting travel plans and summer camp tuition for the kids. Save $5,000 for Argentina, on the other hand, is a compelling goal. I can use pictures of the locations we want to visit to help keep me energized about it, and watch the savings in my travel account slowly creep towards that goal.

How to set your financial goals ?

One of the most important part of financial planning is goal setting . The first step involved is to know where you want to go ? If you have no goals set , then you will be randomly investing and as your goals in life comes along the way, you fulfill them. It can happen many times that you are not prepared and some important goals is near by, however you didn t give much thought to it from many years or months and at the end you have to take decisions in hurry, which you don t want to take. By setting your financial goals in advance you can get a good idea of what lies in future and start preparation for it (Goal of financial planning)

What is goal setting ?

Goal setting is a process of defining your goals in Life. There are many important and intuitive characteristics of any goal, which makes it SMART . Lets see what those 5 important element of goal setting is . Specific : Your goals should be specific and not a very general one, It should contain detailed information and should not leave a room for further questions . I want to buy a house is a very general goal , however I want to buy a 3 BHK Flat in Karvenagar area in Pune costing around 35 lacs within next 5 yrs is a more specific goal which gives a clear picture to you . Look at returns from Real Estate in India Measurable : Your goals should be measurable in terms of How many or How much. It should not happen that you have a rough idea of the goal. Many people I talk with; say I want to buy a big house . Its a great thing to dream for a big house, but at some point in life you will actually decide the actual size and how many rooms and what will be the area. Not having a clear view means no idea of how much it will cost and then you cant save for it properly . I want to buy a 4 BHK house in 5 yrs will mean you can exactly find out how much you need to save per month so that you can achieve the goal with higher accuracy, you should be able to track your goal. That means goal being measurable .

Achievable : This mainly means that your goals should be achievable given your current situation. When financial planners start working with some client, one of the major issues is targeting unrealistic goals in life. Just because you are hiring a financial planner does not mean that he is a magician and will somehow create a strategy for you . If you are saving Rs 20,000/ month , dont target 3 BHK House in 5 years without loan as one of the goal because its not possible given your current situation. If you put a lot of unattainable goals, the first thing is you will not be able to define how you can achieve them in the first hand. Relevent : What will happen, if you always wanted to become IAS officer, whereas your goal is To crack CAT exam ? If this happens , you will start with some enthusiasm in start but at some point, it would be tough to sustain the enthusiasm and energy, because thats not you really wish to and even if you some day achieve that goal which you planned, it would not make sense because its not aligned with your life objectives. This is very much true for financial goals also. You have to make sure your goals are very much what you wish in life . Lets see some of my personal goals in life . a) As I like to travel a lot so I would like to generate enough money in next 15-20 yrs , so that I can travel to different countries every 6 months . b) I would like to build a Farm Land by year 2035, where I can personally do Vegetable Agriculture. (I personally have experience of growing things like corn, potato, tomato, carrots, radish, peanuts, cabbage, cauliflower, chana, almost all green vegetables, pulses, peas , onion , garlic) . Yes I have done it in UP at my hometown as a hobby. Do you know hybrid tomato seeds can cost upto Rs 75,000/KG so we bought 1 gm . c) I would not like to save much for my child marriage, as I would like to encourage them for love marriage and settle things with a simple ceremony , thats all . I dont believe in lavish marriges anyways . d) I have no long-term goals of buying house, I would rather like to live in rent for long and build a corpus in pure equity + debt . If things changes and one day I feel real estate is something which should really be part of my portfolio, I will change my mind . vegSeriously, do you want to buy that 55 lacs flat which is almost out of city and commands a rental yield of not even 3% ? Do you ? Timely : Imagine your goal is like I would like to buy car of 5 lacs, Fine ! . Now what do you do ? Do you save 5,000 per month or 20,000 and for how long , Its important to set a time line so that you have a clear idea of how much does it take to achieve some goal. You can calculate the investment needed for that (See how to calculate) .

Example of Goal setting

Very simple way of doing this is to categorize your goals in Short Term , Mid Term and Long Term and each of them will have High Priority and Low Priority . This way you have a clear idea of what is important and first preference in all the time frame , For example .

y y

I want to buy a Car worth 6 lacs in next 5 yrs, which can accommodate around 5-6 people can be a High priority , Mid Term goal , where as I would like to take a 2 weeks vacation in Kerela with my family worth 50k , can be a Low priority, Mid term goal .

Let us see the full example of Goal settings

High Priority Short Term (<3

yrs)
y y

Low Priority
y

Sister Marriage contribution: 3 lacs in 2012 Initial Child Expenses : Rs 2 lacs in 2015 Abroad vacation with spouse : 5 lacs in 2016 Child Higher Education : 40 lacs in 2035

Buy a Car in 2013 : Rs 3.5 lacs

Mid Term (3-6

yrs)
y

Invest in a unique startup idea in year 2016 : Rs 2 lacs

Long Term (7+

yrs)

60% down payment money for a house : Rs 45 lacs in 2025 Retirement Corpus : 5 crores in 2035

House in a small town : Rs 15 lacs in 2025 Passive monthly income of Rs 50,000 per month starting in year 2030

You might want to look at subras post on Financial Resolution , it gives a good idea of how you should start and stick to financial goals .

Importance of Goal Setting with an Example

Even though it looks nonsense, you need to understand its importance and its impact. Financial Planning is all about achieving goals in the best possible manner by considering your current situation. If you do not have a goal set with some target amount and target date, then you dont have a clear idea of reaching there. Imagine a goal of Child Education which costs Rs 10 lacs in todays value. If your target date is after 25 yrs, then considering a 10% education inflation (historically it stands at 10%), the target amount will be 1.08 crores { 10 X (1 + 10% ) ^ 25 }. Now lets take 3 scenarios with return assumption of 12% per annum .

1) You plan for it and start saving for next 25 yrs In this case , you will have to save Rs 5,710 per month for next 25 yrs . So you can start an SIP today and consistently start investing for this goal . If you get 12% over long-term , and you do not deviate from your goal and consistently invest with discipline , you can reach the target . 2) You plan for it and save more in the starting years In this case , lets assume you can save more money in the starting 10 yrs and then do leave your money to grow for next 15 yrs , then you just need to save 7,800 per month for next 10 yrs and then leave the money to grow for next 15 yrs . 3) You do not plan for it and start saving at later point Incase you do not plan for it and lose the starting years of your earning life and once your child is 9-10 yrs old (suppose you lose 10 yrs) and then you start thinking about the higher education , then to meet the same goal you need to save 21,500 per month for next 15 yrs .
FOUR SIMPLE STEPS FOR SETTING FINANCIAL GOALS Step 1: Identify and write down your financial goals, whether they are saving to send your kids to college, buying a new car, saving for a down payment on a house, going on vacation, paying off credit card debt, or planning for retirement. Step 2: Break each financial goal down into several short-term (less than 1 year), medium-term (1 to 3 years) and long-term (5 years or more) goals. Step 3: Educate yourself! Read Money magazine, or a book about investing, or surf the Internet's investing web sites. The stock market is not voodoo. With a little effort you can learn enough to make educated decisions that will increase your net worth many times over. Then identify small, measurable steps you can take to achieve these goals, and put this action plan to work. Step 4: Evaluate your progress. Review your progress monthly, quarterly, or at any other interval you feel comfortable with, but at least semi-annually, to determine if your program is working. If you're not making satisfactory progress on a particular goal, re-evaluate your approach and make changes as necessary.

Meaningful financial goal setting allows you to:

y y y y y y y

have focus track your financial progress visualize your ideal future motivate you to turn your vision into reality allow you to concentrate your efforts for success have long term vision experience short term motivation