Defining Financial Goals
From Financial Literacy Wiki
Defining financial goals is the second step of the financial planning process. You need to set goals that you wish to attain in the future. Without goals you cannot develop financial plans. Stating your desired goals is analogous to identifying your destination in a trip. Which goals should you pursue? The goals you choose depend on your wants, needs, personality, attitudes and values. For example, if you intend to get married soon, your goal may be to buy a house or set up a wedding fund to pay for the whole wedding.Or you might want to set up a tertiary education fund for your children and the size of the fund would depend on which desired university, when is the entry year and so on. If you are extremely risk averse, your goal may be to start a retirement fund now in order to retire comfortably. If you are thrifty and desire a frugal lifestyle, then you may wish to acquire an HDB flat instead of a condominium for accommodation. When setting financial goals, it is advisable to follow the following guidelines:
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Distinguish long-term goals and short-term goals
It is useful to distinguish your long-term goals from your short-term goals. You need to pay close attention to short-term goals since you have a shorter time frame to achieve these goals compared to long-term goals. Although there is less urgency to achieve long-term goals, it does not necessarily mean that they are less important. In fact, you should ensure that long term goals are broken into sub-components which themselves become short-term goals.
As a rule of thumb, short term goals are those that you wish to achieve within the next 12 months. Long-term goals are those that you wish to achieve beyond one year from now.
Be Specific and Quantify Goals in Monetary Terms
As far as possible, you should specify and quantify your goals in monetary terms. A goal such as "to have a comfortable life" is not a very useful goal because it is not specific enough, you totally have no idea what needs to be done to achieve it and there are no clear guide posts to tell you whether you have 'arrived'.
A more specific goal may be "to have a comfortable life that entails a two-litre car, a condominium and a country club with golf facilities". Quantifying your goals allows you to plan how much you need to invest in order to attain the desired target.
Prioritise Goals
Most people have multiple goals. Given limited financial resources, these goals must be prioritised. That is, you should identify which goals are important and hence should be achieved first.
Be Realistic
The goals that you set have to be realistic. They mustbe achievable within the targeted time frame. Setting realistic goals can ensures that you avoid disappointment in your life. Always refer to your available financial resources when deciding whether it is realistic.
Set Target Dates for Achieving Goals
Target dates help you to determine if you have been successful in achieving the chosen goals since they act as deadlines. If there are no target dates for goals, most people tend to procrastinate. Consequently, you will never know whether you have achieved your desired goals.
