Financial goals are targets set by an individual to achieve financial milestones or plans. In other words, they are financial objectives that an individual wishes to accomplish within a certain time frame. For example, it could be setting up a fund for their children’s education, travel, emergency, health care, etc.
Setting financial goals can help individuals maintain strict discipline while spending. It also encourages savings to attain those goals within that period. In addition, it helps individuals make conscious and informed decisions, especially on investments. These goals also give people more control of their financial decisions and future.
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- What are Financial Goals?
Financial Goals Explained
Financial goals are objectives set by an individual to realize their monetary goals in life. Setting financial goals is a key component to attain financial freedom. Each individual individual’s personal financial goals are different from another. This is because each individual has unique values and aspirations in life. Financial goals planning is the first and most important step toward a safe financial picture in the future.
The planning includes thoughts about the actual earnings, expenditure, investments, and savings. Analyzing all of these components can help in creating a financial plan. A good plan estimates the current financial position of the individuals and the requirements if they are short-term or long-term. The plan then lays out a clear-cut path, i.e., the ways and means to achieve them.
The goals of individuals may vary, such as paying off a debt or loan, going for higher studies, holidays, or retirement. But proper planning is the key to achieving their targets. Therefore, financial goals planning involves calculating the amount of savings, insurance (medical or otherwise), tax planning, retirement planning, and management of related factors. Apart from personal finance, people can also plan financial goals for a business with financial targets in mind, such as where they want their business to reach. The money to be saved for any objective is its potential value, determined by the present cost, inflation rate, and time until the goal is reached.
Short Term Financial Goals
Short-term goals are those that a person needs to achieve in less than three years. They can be regarding creating funds for student tuition fees or buying a car. The focus here should be on safety and liquidity. Banks and credit union accounts can be good options to invest in as the money invested will not lose much value in six months or a year. In addition, they come with easy liquidity. On the other hand, interest rates on savings accounts on deposit may not beat inflation over the given period, even with high liquidity. T-bills (Treasury bills) are a safe option when it comes to short-term goal investments as they have a maturity period of 13 or 26 weeks. Fixed deposits are an option, but individuals must approach them cautiously because early withdrawal incurs a penalty.
There is also another category called mid-term goals, which are goals with an achievement target of three to ten years. For example, buying a house or investing in stocks are intermediate goals as these goals need time to reach the required amount of money. These goals may not have everything in place, but the individual looks forward to accomplishing them soon.
Long Term Financial Goals
Long-term goals are goals that require more than ten years to accomplish. The most common example of a long-term goal is retirement plans. A person makes their retirement plans for 10 or 15, or 20 years ahead of time. The amount gathered should help individuals live their lives post-retirement without going out and searching for work. There needs to be a continuous or steady source of income to meet their day-to-day requirements. Therefore, it is important to make the money work, and the rate of interest acquired should surpass the inflation rate. This factor is crucial as the value of an investment should go up to benefit the individual.
At the same time, there should be room for the principal to grow. Multiple streams of income or passive income can help individuals meet their long-term goals. Proper planning and management of short-term goals are important to achieving long-term goals. Long-term financial goals require diligent planning, execution, and patience.
