If you want to know the financial secret behind moving from where you are and where you want to be, then ponder on questions like where will you be monetarily in the next five years.
If you want to know the financial secret behind moving from where you are and where you want to be, then try to ponder on questions like where will you be monetarily in the next five years or ten year or twenty years?
Your answers may be like “I want to be economically stronger or I want to be monetarily better” but these are not the precise answers. If you don’t have goals, then where will you focus? You are required to set exact, assessable, attainable, practical and time-bound monetary goals.
Some of the few steps to set smart financial goals are-
1) Write down economic goals
List down all your economic goals like buying a house, children’s education, vacations, retirement and similar ones. You may think why this perfunctory act of penning down financial goals is so important. When you start putting your thought into words and try communicating it, a wonderful thing begins to happen. By putting in words, the intangible ideas now form into body, shape and substance. It no longer remains a thought and becomes something which inspires you to work towards it.
For example, if you wish to buy a house and the moment you start writing it down, your mind will move to the second step like “Where, when, how many square feet, how many bedrooms, which area?” Writing your goals gives clearness and pushes your mind to find out ways to achieve your goal.
2) Classify and prioritise
You need to sort out your monetary goals on the basis of timeframe. Usually, the monetary goals, which can be achieved in less than 3 years, are short-term monetary goals. The targets which take 4-7 years to achieve are medium-term goals and the monetary goals which are achieved after 7 years are long-term targets. This classification will assist you in preparing a roadmap to accomplish your goals and also in choosing the correct investment products.
For example, your son’s or daughter’s marriage would be more important than a foreign vacation. Buying a house is more imperative than buying a farm house. This kind of prioritization will help you in making a better monetary plan. Assume if you are in arrears, you know which economic goal can be compromised and which monetary goals you have to accomplish regardless of the deficit.
3) Mark a target date
Fixing a target date for your monetary goals may seem a bad idea as how would I know beforehand the date of buying a house or the date of my son’s or daughter’s marriage? But if you don’t fix it, then you will not be economically prepared for it. If you are financially ready then you will have no worries from thereafter with sufficient capital to meet that goal.
Marking a target date will psychologically persuade your thinking process to work towards achieving that goal and the countdown begins in your mind.
4) Assessing the expenses
First you require assessing the expense as of today. If you plan to save for your son’s or daughter’s marriage, which is likely to happen after 10 years, you first need to estimate the expense of the marriage in today’s prices. Then you should calculate it for inflation of 10 years to find out the future value of your goal.
5) How much to save?
Once you calculate the future value of your target, it becomes easy for you to decide on how much you need to invest to achieve the targeted future value. In the beginning, you may only be able to contribute less; but after every passing year you can add to this contribution based on your increment/promotion/revenue growth.
So you need to take into account the likely growth rate on your income or business or professional earnings to estimate how much to save towards each and every monetary target.
6) Budget the savings
As you have learned by now precisely how much to save towards each and every target, you require to hold these savings in your funds. If you regularly do this every year, then you can see all your monetary goals turn into reality.