How to set financial objectives to progress towards your financial goals? Here are 4 key ways

Having financial security enables you to pursue your passions and lead a fulfilling life. To achieve this, setting clear financial goals is essential.

Abeer Ray
Published24 Jun 2024, 03:01 PM IST
Setting financial goals is important to achieve them in the long run.
Setting financial goals is important to achieve them in the long run.(Pixabay)

“The Almanack of Naval Ravikant” underscores the importance of setting a clear goal, particularly in the realm of business. Naval Ravikant’s approach to achieving wealth and financial success is distinctive because he emphasizes personal growth as a crucial factor for professional achievement. Having a defined financial goal is crucial as it guides decisions on earning money, identifies necessary skills to acquire, and specifies domains or knowledge to pursue.

Anthony Jay Robbins, an American author, coach, and speaker, aptly stated, “Setting goals is the first step in turning the invisible into the visible.” By tackling one part at a time, one day at a time, we must achieve any goal we set for ourselves. But where do we begin? You might have dreams and aspirations but lack a starting point. More importantly, how can you transform your financial aspirations into tangible, actionable goals?

Clarify your dreams

Firstly, what lifestyle do you imagine? Are you dreaming of globe-trotting, settling in a particular place, or indulging in hobbies without restraint? How much financial support would such a lifestyle necessitate?

Secondly, how crucial is financial stability to you? Are you aiming for a substantial safety net, the capability to withstand unforeseen circumstances, or the freedom from debt? Contemplate your long-term aspirations. Are early retirement, funding your children’s education, or leaving a lasting impact on your agenda? Assess which financial objectives resonate most with your principles. Does achieving financial independence matter? Are you interested in contributing to causes dear to you?

Adopt SMART objectives

Utilize the SMART framework to transform financial dreams into actionable plans. Here’s how it can be applied to some of the financial aspirations we discussed with examples:

1. Short-term Goal

Dream: Establish an emergency fund

SMART Goal: Save 5000 within the next 3 months by allocating a portion of income to a high-interest savings account.

2. Mid-term Goal

Dream: Take a trip to a nearby hill station in two years

SMART Goal: Accumulate funds for the trip over the next two years by dedicating a portion of monthly earnings to a travel savings account.

3. Long-term Goal

Dream: Retire comfortably at age 60

SMART Goal: Consistently save and invest, select appropriate investments aligned with risk tolerance and financial goals. Increase retirement contributions by 2% of salary annually, beginning this year, and adjust contributions based on income growth and investment performance reviews.

Arrange in order of importance and categorize

Putting your goals into time horizon categories will help you prioritize and ensure your financial plan is comprehensive. After classifying your objectives, you can rank them according to importance for each period. For instance, among short-term objectives, saving for a vacation might not come before emergency fund building.

Here are some further suggestions on how to prioritize:

Evaluate urgency: Identify which goals require immediate attention.

Align with values: Determine which goals are crucial for realizing your broader vision.

Consider future impact: Assess how achieving short-term goals can advance your mid-term and long-term objectives.

Incorporating these considerations will help you develop a prioritized list to steer your financial decisions effectively.

Monitor progress and adjust as needed

Monitoring your progress and adjusting your plan are essential for reaching your financial goals. Begin by consistently reviewing your budget and tracking both income and expenses using budgeting apps or spreadsheets. Assess whether you’ve met your monthly savings target and if you’re on course to achieve your short-term goals. Celebrate milestones along the way to maintain motivation. Identify any areas where overspending is consistent and consider reallocating your budget to prioritize specific goals.

Additional tips for consideration include:

Evaluate your budget: Having a clear grasp of your income and expenses is essential for making well-informed financial decisions.

Seek expert advice: A financial advisor can offer customized guidance that aligns with your specific circumstances.

Automate your financial tasks: Establish automatic transfers to savings or investment accounts to maintain steady and reliable progress.

Achieving financial goals is akin to running a marathon rather than a sprint. It demands perseverance, discipline, and the capacity to acknowledge small victories along the journey. Celebrate milestones, maintain discipline, and adjust your strategy as necessary.
 

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First Published:24 Jun 2024, 03:01 PM IST
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