Financial experts, investment advisors and retirement planners – all advise you of the benefits you stand to gain with proper financial planning. Setting up a structured plan for saving and spending lets you take control of your finances so that your long term financial goals are met. However, to make your financial planning effective, it is essential for you to set goals.
The Importance of Goal Setting
Goal setting lets you set specific targets to work towards. When you have a clear, focused approach, the chances that your strategy will succeed are higher. With goal setting, you know the desired outcome of each financial activity you undertake. This helps you streamline your approach or adopt a new one that gives you exactly the result you desire.
For example, let’s assume one of your financial goals is to save enough in 10 years to fund your child’s college education. With some research you can find out what a college education costs at present. Factor in inflation for 10 years and you have a fairly accurate idea of how much you will need then.
This should be the outcome of your investment in a college fund. Now you can compare various investment avenues to see which ones will give you the right risk- return balance to generate this outcome.
When you are setting your financial goals, it is important to make sure that they are attainable. Setting a goal to acquire a luxury condo in New York at a time when you are 5 years away from retirement is not reasonable or attainable.
But a three bedroom home with a yard and swimming pool in a school neighborhood is definitely an achievable goal for a person who has a good 15 years of working life ahead of him/ her. Your goal should factor in your earning capacity and a reasonable assessment of your future lifestyle.
Reviewing Goals Periodically
Once you set your goals, your job is not done. It is important to review them periodically and tweak them if necessary. As you progress in your career and in your life, your goals may change. For example, when you start your career, your primary goal may be the acquisition of a home next to your office.
But when you have children you may prefer a home in a safe neighborhood near good schools. Or a college fund for your son may take precedence over your goal of a home. Evaluating your goals and revising them makes sure that you are working towards goals that are in line with your future lifestyle.