5

Financial Goals

Learning Outcomes
After studying this chapter, students will be able to understand:
What are financial goals.
How &why financial goals are important.
What are different types of financial goals.
How financial goals can be achieved.
When financial goals should be formed.

5.1 Introduction
full satisfaction from each money spend.
Most people want to handle their finances so thatcar,they get
a larger home, advanced career training, extended
Ypical financial goals include such things asand
anew
retirement years. To achieve these and other goals, people
ravel, and self-sufficiency during working if be left
However, you dont set your financial goals, you'll probably
ed to identify and set priorities.
we will study about the financial goals, their
wondering where all your money went. In this chapter
needs, types and importance in our life.

5.2 Meaning are

of Financial Goal
Financ targets, usually driven by specific future financial needs. Some financial goals we
comfortable retirement, to send our children to
Col Set as an
individual include saving for a saving
college managing our finances to enable ahome purchase.
 5.2 || Financial Literacy

Financial goals are the personal, big- picture objectives you set for how you'll save and spend money.
term or further down the road. Either way, its often
They can be things you hope to achieve in the short
easier to reach your goals if you identify them in advance.

To achieve financial goals, people need to identify

and set priorities. Financial and personal
referred to as personal money
satisfaction are the result of an organized process that is commonly
Some financial goals we might set as an individual include
management or personalfinancialplanning.
to college, or managing our finances to
for comfortable retirement, saving to send our children
saving a
the next five, 10 and
enable a home purchase. Financial goals are where you want be-financially-in
to

20 years. Or even next year.

F NAN CIAL
GO AL S

Examples of Financial Goals Include:

.Paying offdebt.
Saving for retirement.
fund.
Building an emergency
Buying a home.

Saving for a vacation.

Startinga 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 today. For example
Sav your goal is to pay off a colossal credit card bill. You might cut back on takeout dinners and use the
money you save to make extra payments instead. Without establishing that goal, you're more likely to
continue spending as usual while your debt piles up.
Like all expenses, financial goals should be included in your budget. That way, you can take concrete
them while leaving room for other costs.
steps toward reaching
Identifying goals and creating arealistic 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 moneyhabits along the way
 Financial Goals|| 5.3

54 Types of Financial Goals

(Shortterm financial goal:
Short-term financial goals take under one year to achieve.
Examples may include taking a vacation, buying a new refrigerator or paying offa specific debt.

(i)Middleterm financial goal:

Mid-term financial goals can't be achieved right away but shouldn't take too many years to accomplish.
Examples may include purchasing a car, finishing a degree or certification, or paying off your debts.

(ii) Long term financial goal:

Long-term financial goals (over five years) may take several years to accomplish and, as a result, require
longer commitments and often more money.
child's education, comfortable
Examples might include buying a home, saving for a college or a

retirement.

5.5 Financial Goals You Must Achieve before Your 40s

but when
your near 40s, you
For planning may not be a priority in your 20s,
instance, retirement you
want to invest to secure your golden years. Just like
other life stages, your 40s is a critical phase in your
life.
the peak of their careers, have a family to
This is normally the by which people are nearing their
time
children's education and paying off
like funding
Support, and need to balance complex obligations
a home loan.
that you must
Each stage of life is different and so are its financial goals. Here are a few financial goals
achieve before you turn 40.:
1. Securing a Home for Yourself
2. Build an Emergency Fund
Insurance
3. Get Yourself Life and Health
4. Retirement Planning
S. Plan for Your Children's Education

Examples of Personal Goals intermediate and long

classified them into short term,
are some of the example of personal goals
term.
e
Long Term
Short Term Intermediate
Possible Goals
1. Minimize your debt
2.
Pay off college loans
3. Build an emergency fund Contd...
 5.4 || Financial Literacy

Possible Goals Short Term Intermediate Long 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 Financial 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 allways 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 it's best to set incremental goals. Prioritize, then achieve. Alter
accomplishing some of the easier goals, you gain confidence in your decision making. That proviad
motivation to achieve the more difficult targets that require more time and discipline.

5.7 Steps to Set Financial Goal

You
"Where will you be five years from now? 10 years from now...? 20 years from now...?
financially
may get answers like "I will be financially stronger", "I want to be financially better". Are these ansW
specific? If you don't know where you want to go exactly, there is no focus. Though setting fhnanci
it is rather easy
goals might seem to be a daunting task but if one has the will and clarity of thought,
 Financial Goals|| 5.5
make
make financial goals in lite. Therefore while framing the financial
MMeasurable, Achievable, Realistic and Time bound Financial [Link] they need to be to set Specific,
That is S.M.A.R.T. Financial
These are the 5 steps to be followed to set the financial
goals.
goals.
1. Be Clear About the Objectives
Any goal (financial) without a clear objective is nothing more than a pipe dream. And this couldn't be
more true for financial matters.
It is often said that
savings 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, that dream vacation, fancy car etc.
anything like kid's education, retirement,
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 they may be, that you foresee
in the future and put a value to it.

2. Keep Them Realistic

Irs 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 aggressive, going out of the line will definitely hurt your
chances of achieving them.
Its 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

IOu should account for inflation whenever you are putting a monetary value to a financial objective that
is far
away in thefuture.
goal is your son's college education, is years hence,
which 15
or example, if one of your financial
unen inflation would increase the monetary burden by more than 50% if inflation is mere 3%. So always
account for inflation.

4. Short Term vs Long Term

Just towards achieving every financial goal will not be the
every calorie is not the same, the approach
term and long term.
e important to bifurcate goals in short
t is

a rule of thumb, any financial goal, which

is due in next 3 years should be termed as short term
AS term goals. This bifurcation of goals into short
duration goals are to be classified long
as
y longer instrument to achieve them.
the right investment
1ong term will help in choosing
5.
Financial Goals are Yours Not Inspired by Others
affair i.e. goals are your own goals and are
ne journey ofs is individualistic your
uney of setting financial goals them. A lot of times we get on the bandwagon of goal setting only
an

mined by your want to achieve

to realize later on that not meant for us.
it was
and not inspired by someone else. Take a hard
It is im are actually your goals
ook a orlant that your goals will be on the way to achieve them.
set for after this step, you
s
step at all the goals you've
 5.6 || Financial Literacy

5.8 How Finanial Gools can be Achieved?

Smart Strategy
The word SMART stands for
Specific, Measurable, Achievable, Relevant and Timely.
The list of goals that satisfhes these criteria is the
SMART And any goal which
bring in this list is well within your potential to achieve them. spectrum. you can
For example, saving for a motorbike
vague and hard to measure. How will you know if is
other hand, saving 50,000 you are
making progress or have achieved it? On the
rupees for a 100 cc motorbike within 10 months, is SMART. It's
know exactly what you're
saving for. It's measurable you know how much you will need. specifhc
-

-
you
and realistic -

you can break the total amount needed into It's achievable
smaller (saving 5,000 rupees a month)
which is easier
to do. And it's time bound you've set a deadlinesteps of 10 months. It's important
short medium and -

long-term financial goals. to set

Let's get SMARTI
For example: If you want to buy a house, say:
"I want to buy a 3BHK flat in ECR worth of 2 crores in 7
years"
HOW TO ACHIEVE YoUR
FINANCIAL GOALS
WITH A TARGETED
STRATEGY?

Specific: Be speciñc about the financial need

like region, rules and and time need and in
regulations, economy status, etc. other goal influencing
facto
Measurable: Give your financial
What kind of flat? 3 BHK. goals measurable numbers and values.
What should be the worth?
2 crores.
In how many
years? 7 years.
Achievable: Set Achievable
financial goals.
 Financial Goals|| 5.7

For a house worth of 2 crores in 7 years, you will need to save nothing less than 725 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.
I f you are going to settle in Bangalore for the rest of your life, would a 3BHK in ECR, Chennai
make any sense?
.Timely: You probably won't need a house now you can take some time to achieve it since it is not
going to afect the achievement of your other financial goals. But you cannot afford to lose time in
your childs education. You should plan for that financial goal before other financial goals.

FINANCIAL GOALS:
PLANNING AND IMPLEMENTATION
CATEGORIZE PRIORITIzE

Colleg
STRATEGIZE IMPLEMENT THE
STRATEGGY

There few questions one can ask himself to achieve his goals:
are

What Do I Want? What Are My Priorities? When Do I Want It? What Will It Cost?
How Can I Make
Savings Easier?
here are 8 strategies by applying these financial goals can be achieved easily:
Obtain financial goals.
Plan how to spend your money.
Spend wisely.
Save on a
regular basis.
Borrow wisely.
Invest to increase current income for long-term growtn.
Manage risk.
Plan for retirement.
 5.8 || Financlal Literacy

A sample checklist for reference:

Spectrum of
S. No. SMART Financial Goal
Financial Goals
1 Paying off debts Pay off all debts (715 lakhs) in 6 years.
2 Buying Own House Save R2crore in 12 years, for a 3BHK home in ECR, Chennai.
3 1-year Emergency und Save 76 lakhs for Emergency Fund in 3 years, to use in case if there is
NO incomefor 1 year.
4
Upgrading Car Exchange and replace the old car with a new one worth 715 lakhs in
5 years.
5 Financial Independence Attain financial independence in 18 years with
by investing a holistic
financial plan.
6 Children's Wedding Save 78 lakhs for children's wedding expenses in 4 years.
7 Revamp House Save 2 lakhs revamp house in 3 years.
to
8 Child's Education Fund Save 30 lakhs for child's higher education in 15
years.

5.9 Significance of Financial Goals

Here are seven reasons
why you should set financial goals, and how they'll 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
By setting financial goals you are goals?
quantifying your ambitions -putting a number on them.
Reason #3: Different Financial
Goals Require Different
When you've decided
Strategies
your financial goals, you can then work out the
strategies which are right for you

TO DO LIST
[Link]
MAKE
[Link]
 Financial Goals || 5.9

Reason # 4: It Helps Shape Your Career Choices

When you know what your financial goals
,

can complement each other

are, your career
planning and your financial planning

Reason #5: Setting Financial Goals Helps You Stay Focused

This will help you stick to your guns when you're tempted to splurge on something you don't need,
and remind you why you're working extra hours.

Reason #6:You Can Find 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 first 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 for
everything. Without financial goals no individual can achieve whatever he or she wants to achieve. So.
onemust start planning financial goals from a younger age, even parents should encourage their children
to think about financial
goals.

Review Questions
Define financial goals? Define the different types offinancial goals.
2. What are the
steps followed to set the individual goals?
S. How we can achieve our financial goals in life?
4: What are the reasons for setting up of financial goal?

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