5

Financial Goals

Learning Outcomes
After studyingthis chapter,students willbe able to undersond:
What are financial goals.
How& why financial goals are important.
What are different types offinancial goals.
How financial goals can be achieved.
When financial goals should be formed.

5.1 Introduction
Most people want to handle their finances so that they get ful satisfaction from each money spend.
extended
Typical financial goals include such things as a new car, a larger home, advanced career training,
travel, and self-sufficiency during working and retirement years. To achieve these and other goals, people
need to identify and set priorities. However, if you don't set your financial goals, you'll probably be let
wondering where all your money went. In this chapter we will study about the financial goals,
their

needs, types and importance in our life.

5.2 Meaning of Finandal Gol

Financial goals are targets, usually driven by specific future financial needs. Some financial goals we

might set as an individual include saving for a comfortable retirement, saving to send our children to

college, or managing our finances to enable a home purchase.

 Pinancial goals are the
C a n de
personal, big-picture objectives you set for how y
things you hope to achieve in the short term or
further down the road. Either Way,
**

as et to reach
your goals if you
identify them in advance.
hieve financial goals, people need to identify and set priorities. Financial and al
Satistaction are the result of
an
organized process that is commonly reterred to a
gement or
personal financial planning. Some financial goals we might set as an individua incau
ving tor a
comfortable retirement,
saving
enable a home purchase. Financial goals areto send vou
where children college,
to
our want to be--financially-in
or managing our
the next ive,
20 years. Or fve. 10 and
even next
year.

FNA N C IA L
G 0 A LS

Examples of Financial Goals Include:

Paying off debt.
Saving for retirement.
Building an emergency fund.
Buying a home.
Saving tor a vacation.
Starting a business.
Feeling financially secure.

5.3 Why Financial Goal are Needed?

Having financial goals can help shape your future by influencing the actions you take
say your goal is to pay off a colossal credit card bill. You
today. For example,
might cut back on takeout dinners and use the
money you save to make extra payments instead. Without
continue spending as usual while your debt
establishing that goal, you're more likely to
piles up.
.ike all expenses, financial goals
should be included in your budget. That way, you can take concrete
steps toward reaching them while leaving room for other costs.

ldentifying goals and creating a realistic plan for them allows you to track progress and can motivate
you to keep going. Even if you fall short, you might develop some
healthy money habits along the way
 5.4 Types of Financial Goals
( Short term financlal goal:
one year to achieve.
Short-term financial goals take under
off a specificdeD
vacation, buyinga new refrigerator or paying
Examples may include taking a
(1) Middle term financial goal:
shouldn't take too many years to accomplish.
Mid-term financial goals can't be achieved right away but off your debts.
finishing degree or certification, paying
or
a
Examples may include purchasing a car,

(Hl) Long term financial goal:

result, require
take several years to accomplish and, as a

Long-term financial goals (over five years) may

commitments and often more money.
longer or a comfortable
a home, saving for a
childs college education,
Eramples might include buying
retirement.

before Your 40s

5.5 Finoncial Goals You Must Achieve
when you near your 40s, yoii
retirement planning may not be a priority in your 20s, but in your
For instance, a critical phase
like other life stages, your 40s is
want to invest to secure your golden years. Just
life. their have a family to
nearing the peak of
careers,
This is normally the time by which people
are off
their childrens education and paying
balance complex obligations
like funding
support, and need to
a homeloan Here are a few financial goals that you must
and so are its financial goals.
Each stage oflife is different
40.:
achieve before you turn
Yourself
a Home for
1. Securing
Fund
2. Build an Emergency
and Health Insurance
3. Get YourselfLife
4. Retirement Planning
Children's Education
5. Plan for Your
Personal Goals intermediate and long
Examples of classified them into short term,
the example ofpersonal goals
These are some of
term. Long Term
ShortTerm Intermediate

Po6sible Goals
1. Minimize your debt

loans
2. Pay off college
3. Build an emergencyfund
 i'lItACIAT L l t E r a

Intermediate
Long Term
Possible Goals Short Term
4. Buy a house
5. Make home improvements
6. Buy a vocation home
7. Buy a new car
8. Have children
9. Finance children's education
10. Buy major luxury items
11. Buy new furniture or appliances
12. Enjoy an expensive vocation.
13. Take time off from work
14. Start your own business
15. Retire early
16. Live in style after retirement

5.6 Develop Finoncial Goal Chart

Developing a financial goals chart is a good way to begin this process. Here are the five steps you should
follow in order to set up your goal chart:
1. Write down one personal financial goal. It should be specific, measurable, action-oriented,
realistic and it should have a timeline.
2. Decide if your goal is short-term, mid-term, or long-term, and create a timeline for that goal.
This may change at any time based on your situation.
3. Determine how much money you need to save to reach your goal and separate that amount by
the month and/or year.
4. Think of all ways you can reach that goal. Include saving, cutting expenses, earning extra money
or finding additional resources.
5. Decide which is the best combination of ways to reach your goal and write them down.
All of that might sound daunting, but its best to set incremental goals. Prioritize, then achieve. After
accomplishing some of the easier goals, you gain confidence in your decision making. That provides
motivation to achieve the more dificult targets that require more time and discipline.

5.7 Steps to Set Financial Goal

"Where will you be financially five years from now? 10 years from now...? 20 years from now..?" You
"I want to be financially better. Are these answers
may get answers like "I will be financially stronger,
there is no tocus. Though setting financial
specific? If you dont know where you want to go exactly,
goals might seem to be a task but if one has the will and clarity of thought, it is rather easy to
daunting
 make financial goals in life. Therefore while
framing the financlal goals they need to be to set Specific
Measurable, Achievable, Realistic and Time bound Financial Goals. That
These are the 5 steps to be followed to set the financlal is S.M.A.R.T. Financial goals.
goals,
1. Be Clear About the Objectives
Any goal (financial) without a clear objective is
more true for financial matters. nothing more than a pipe dream. And this couldnt be
often said that savings is
It is
nothing but deferred consumption. Therefore if you are saving today,
then you should be crystal clear about what it is for. It could be
marriage, dream vacation, fancy car etc.
that anything like kid's education, retirem
Once the objective is clear,
put a monetary value to that objective and the time frame. The important
point at this step of goal setting is to list all the objectives, however small
in the future and they may be, that you foresee
put a value to it.
2. Keep Them Realistic
ts good to be an
optimistic person but being a day dreamer is not desirable. Similarly, while it might be
a
good thing to keep your financial goals a bit aggresive, going out of the line will definitely hurt your
chances of achieving them.
t's important that you keep
your goals realistic in nature for it will help you stay the course and keep
you motivated throughout the journey
3. Account for Inflation
You should account for inflation whenever you are putting a monetary value to a fînancial objective that
is far away in the future.
For example, if one of your financial goal is your son's college education, which is 15 years h
then inflation would increase themonetary burden by more than 50% if inflation is mere 3%. So always
account for inflation.

4. Short Term vs Long Term

Just like every calorie is not the same, the approach towards achieving every financial goal will not be the
same. It is important to bifurcate goals in short term and long term.
As a rule of thumb, any financial goal, which is due in next 3 years should be termed as short term
goal. Any longer duration goals are to be classified as long term goals. This bifurcation of goals in
term vs long term will help in choosing the right investment instrument to achieve them.

5. Financial Goals are Yours Not Inspired by Others

The journey of setting financial goals is an individualistic affair i.e. your goals are your own goals and are
determined by your want to achieve them. A lot of times we get on the bandwagon of goai setting only
to realize later on that it was not meant for us.
else. Take haru
It is important that your goals are actually your goals and not inspired by
someone a

will be onthe way to achieve them.

look at this step at all the goals you've set for after this step, you
 5.8 How Financial Goals can be Achieved?
Smart Strategy
Relevant and Timely.
he word SMART stands for Specific, Measurable, Achievable,
The list of goals that satisfies these criteria is the SMART spectrum.
And any goal which you can
bring in this list is well within your potential to achleve them. For example, saving for a no
tne
achieved tf On
and hard to measure. How will you know if you are making progress or have
aguehand, saving 50,000 rupees for a 100 cc motorbike within 10 months, is SMART. K's speciñiC-you
other
Know exacty what you're saving for. It's measurable - you know how much you will need. Its achlevaol
dnd realistic - you can break the total amount needed into smaller steps (saving 5,000 rupees a nmou

to ser
Which is Casier to do. And it's -

time bound you've set a deadline of 10 months. It's important

short medium -

and long-term financial goals.

ler's get SMART

For example: If you want to buy a house, say:
T want to buy a 3BHK Alat in ECR worth of2 crores in 7years
HOW TO'ACHIEVE YOUR FINANCIAL GOALS
i WITH ATARGETED STRATEGY?

Specific: Be specific about the financial need and time need and in other goal influencing factors
like region, rules and regulations, economy status, etc.
Measurable: Give your financial goals measurable numbers and values.
What kind of flat? 3 BHK.
What should be the worth? 2 crores.
In how many years?
7years.
Achievable: Set Achievable financial goals.
 For a house worth of2crores in 7years, you will need to save nothing less than 125 lakhs/
year; assuming your savings will give a 12% return.
If this is possible for you, you are good to go. You have an achievable financial goal.
Relevant: One of the simplest yet vital steps. Make your financial goals relevant to your life and
dreams.
Chennai
fyou are going to settle in Bangalore for the rest ofyour life, would a 3BHK in ECR,
make any sense?
since it is
Timely: You probably won't need a house now you can take some time to achieve itto lose time i
not

cannot afford
8oing to aftect the achievement ofyour other financial goals. But you
your child's education. You should plan for that financial goal before other inancial goals.

FINANCIAL GOALS
PLANNING AND IMPLEMENTATION
CATEGORIZE PRIORITIZE

olege

STRATEGIZE IMPLEMENT THE

STRATEGY

There are few questions one can ask himself to achieve his goals:
What Do I Want? What Are My Priorities? When Do I Want It? What Will It Cost?
How Can I Make Savings Easier?
There are 8 strategies by applying these financial goals can be achievedeasily
Obtain financial goals.
Plan how to spend your money
Spend wisely.
Save on a regular basis.
Borrow wisely.
Invest to increase current incomefor long-term growth.
Manage risk.
Plan for retirement.
 *'****
A sample checklist for reference:
Spectrum of SMART
Financial Goal
S.No. Financial Goals
|Paying off dcb: Pay off all debts (715 lakhs) in 6 years.
Buying OWn House 2crore in 12 for a 3BHK home in ECR, Chenna.
ave years,
use in caseif
there 1s
1-vear EmergencyFund Save 6 lakhs for Emergency Fund in 3 years, to
NO income for 1year.
in
with a new one
worth l 5 lakhs
Upgrading Car EXChange and replace the old car
5years. with a holistic
Financial Independence in 18 years by investing
raun nnanclal independence
financlalplan.
Children's Wedding Save 78 lakhs for children's wedding expenses in 4years.
Revamp House Save 2 lakhs to revamp house in 3 years.
Child's Education FundSave 30 lakhs for child's higher educationin15 years
5.9 Significance of Financial Goals
ere are seven reasons why you should set financial goals, and howthey' help you achieve success.
Reason #1: You Need to Know Where You're Going
What are you trying to achieve? How will
you define success?
Setting financial goals will help you to answer both of these questions.
Reason #2: Setting Financial Goals Dictates How Much You Need to Save
How much do you need in savings and investments to realize your financial
goals?
By setting financial goals you are quantifying your ambitionsputting a number on them.
Reason #3: Different Financial Goals Require Different
Strategies
When you'e decided your financial goals, you can then work out the strategies which are right for you.
TO DO LIST
1.MAKE
32MORE
.MONEY
 Reason #4: 1t Helps Shape Your Career Choices
When you know what your financial goals are, your career planning and your financial planning
can complement each other

Reason#5: Setting Financlal Goals Helps You Stay Focused

This will help you stick to your guns when you're tempted to splurge on something you dont need.
and remind you why youre working extra hours.

Reason #6: You Can Flnd the Right Tools to Help

Setting financial goals will enable you to critically evaluate which tools can help you on your way
so you can buy only those which are most useful to you
Reason #7: Setting Financial Goals Creates a Sense of Achievement
Setting financial goals is the very frst step, and it takes both thought and discipline

Summary
In conclusion, it can be said that if finance is means for everything, financial goals is the end ior
everything Without financial goals no individual can achieve whatever he or she wants to achieve. So,
one must start planning financial góals from a younger age, even parents should encourage their children
to think about financial goals.

Review Qvestions
1. Define financial goals? Define the diferent types of financial goals.
2. What are the steps followed to set the individual goals?
3. How we can achieve our financial goals in life?
4. What are the reasons for setting up of financial goal?