Last Updated on November 4, 2023 by BFSLTeam BFSLTeam
Financial planning is a must and this could not be emphasised more strongly than in this digital age than ever before. Today, when inflation is hitting the ceiling and prices from utilities to healthcare are rising, you need a financial plan to see you through all the expenses that you have to incur in your life. What’s more, if you have dependents like a family or elderly parents who rely on you financially, planning becomes all the more important. Let’s read on to this 5 important Steps to Achieve Smart Financial Goals.
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What Does Financial Planning Involve?
You may hear the term “financial planning” and freeze, but there is no need to do so. The task of financial planning is not as daunting as it seems. Once you start to plan in a systematic way, you will notice that your financial plan achieves a structure and you will be able to execute it easily.
So, what does financial planning involve? The way to start your financial planning framework is to set goals. These may be further divided into short-term goals, medium-term goals, and long-term goals. However, the goals you set should be “smart” and not considered in a random manner. For example, you cannot set a goal to buy a home “when you have enough money”. You have to be more specific when you set your goal to own a home. There are five aspects of setting goals and you may call these steps to set your goals appropriately.
5 Steps to Reach Smart Financial Goals
The way to reach your smart goals for achieving success in your finances is to follow five simple steps (which could also be related to goals). Here are the steps:
- Set Specific Goals
Your goals should not only be well-defined but should be specific too. Just saying, “I want to pay off my loan” is not enough. Instead, you may say, “I want to save Rs. 25 lakh to pay off my home loan by 2026”.
- Set Measurable Goals
There is no room for being vague or abstract when considering your financial goals. You must be able to measure and quantify your goals clearly. Unless you quantify your goals, you cannot be specific enough to know what you are aiming for. Once you have a measurable goal in mind, it is possible for you to monitor your progress toward achieving it. You can also possibly estimate the time it will take to reach it.
- Set Achievable Goals
When you set goals, you may be enthusiastic and aim for goals that may not be realistic or attainable, given your unique circumstances. These are common errors when we aim too high and want to reach goals very quickly. While setting goals, you should take your current income into account, any expenses, and any outstanding debts/loans. Say you wish to buy a car worth Rs. 25 lakhs in 2 years if your salary is just Rs. 50,000 per month, and you have liabilities that account for Rs. 40,000 unless your salary increases by a certain amount, the goal of buying a car worth Rs. 25 lakhs will likely not be achievable.
- Set Relevant and Realistic Goals
Related to the point mentioned above, you should set realistic goals and goals which have relevance. In other words, your goals should be aligned with your distinctive financial plans, your present monetary state, and your long-term horizon (or whichever term you are considering goals for). If you make your goals relevant, you will be motivated to achieve them by putting in the work necessary to do so.
- Set Time-Bound Goals
To enable you to fulfill your goals, you should make sure they are time-bound. They must be decided upon within a pre-determined time frame. Unless your goal is time-bound, it may likely be postponed to accommodate other priorities.
A Regular Review of Financial Goals
It is imperative that you revisit your goals on a regular basis and compare the process of achieving them to your goals for achieving them in the first place. Ask yourself whether your goals need to be tweaked to accommodate new goals, or whether your priorities have changed for more necessary goals. Your monetary situation may have changed and you may want to set higher or lower goals accordingly.
Set Financial Goals and Achieve Milestones
In life, there are many milestones and to cross each one, there are some finances involved. For instance, one milestone could be getting married. This may involve a great deal of expenditure, depending on the concepts you have in mind. However, while planning for such milestones, it is prudent to be financially realistic so you don’t end up taking loans to meet unrealistic and unnecessary expenses that you can ill afford. Therefore, while setting your goals, it is necessary to consider achieving goals to meet your needs before your wants. You must be aware of your own financial condition and set realistic and attainable goals. You can always consult a financial advisor to do so, or you may list your goals yourself.
