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Steps for Setting Financial Goals

Do you aspire for financial stability? Then you should set up personal milestones and start investing accordingly. The general belief is that setting financial goals is limited to a specific age group. However, in contrast to this belief, you should start planning your finances from the day you start earning. Otherwise, without a purpose, you will end up overspending and will be left with a deficit always. ...Read More

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Financial Planning

Short Term Financial Goals

Steps for Setting Financial Goals
December 12, 2024

Table of Content

 

Setting up short-term financial goals gives you the confidence to realise bigger goals that are time-consuming. To achieve these goals you need financial planning that involves the following steps:

  • Create a Budget

After setting financial goals, draw a budget taking into consideration your income and all your expenses. You will get an idea of the resources available for investing.  You then allocate funds to different assets depending on your goals and risk tolerance. 

  • Build an Emergency Fund

While setting financial goals, build an emergency fund for unforeseen expenses like medical emergencies, minor home repairs, etc. Park a specific amount in a savings plan where you can access funds easily for emergencies that arise time and again so that such expenses will not hinder your investment process. 

  • Clear Your Credit Card Debt

Credit Card debt is a high-interest debt which can drain your reserves. Clearing the outstanding credit card liability should be a priority to enhance the resources for investment. 

  • Saving for a Vacation or a Major Purchase

If you have been deferring a vacation plan or a major purchase for want of funds, setting financial goals to systematically plan and save to achieve the goal will help. Put aside a part of your income every month in a high-yield savings account to grow your funds. This will avoid incurring a debt to go on a vacation or for major shopping.

Mid-Term Financial Goals

Mid-term financial goals fill the gap between short-term and long-term goals. After you have planned for the short-term goals, it is time to think of mid-term goals. 

  • Get Life Insurance and Disability Coverage

If you are the only earning member in the family, life becomes financially stressful if anything untoward happens to you like untimely death or permanent disability due to an accident and the income stops. Setting up financial goals to avoid this situation, and getting life insurance with an accidental total and permanent disability benefit rider is a smart move. The life cover in a term plan provides death benefits on your untimely demise for the financial security of your family. If you are disabled to the extent that you cannot continue with your job, the rider provides a lump sum benefit or monthly payouts to cover your living expenses. 

  • Pay Off Your Student Loans or Car Loans

Student loans or car loans can be a great burden on your monthly budget. Try to clear the loans at the earliest as this will enhance the resources to invest for your other financial goals or retirement. Income and expenses tracking is pivotal to increasing the resources to repay the loan so that it does not hinder your existing investment plan.

  • Starting a Business or Expanding an Existing Business

Starting a business or expanding an existing business requires considerable funding. Setting up financial goals with a timeline will help work towards the goal and build the required funds. Do thorough market research and grab the investment opportunities available to gain high returns. Recreate the budget to enhance the resources for investment. Systematic financial planning is essential to achieve this goal. 

Long-Term Financial Goals

The most important long-term financial goal is retirement planning. The general rule is to allocate 10 to 15% of your income to retirement plans like ULIP, Pension plans, Annuity, etc. To assess the corpus you need for a financially independent retired life, follow the steps given below:

  • Calculate How Much You’ll Need for Retirement

Evaluate your expenses for a comfortable post-retirement life. You should revisit the budget created while setting financial goals to understand how much you need for your retirement. You will have to allocate funds for healthcare needs as you are more prone to medical issues in old age. If your job provides a pension, deduct the amount to arrive at the residual needed from investments for retirement fund planning.

  • Boost Your Retirement Savings

Calculate the fund requirement for a peaceful retired life. Apply 5% inflation to the number of years left for your retirement. This will give the exact corpus required for a future date. Consolidate the assets already created and the estimated savings every year. Do a personal financial goals review and change them to align with the current requirements if necessary. Calculate how much funds are left after fulfilling these goals. You will then understand how much you have to boost your savings for retirement planning. Tweak your investment portfolio to align with the added goal.

  • Paying off a Mortgage

Once you have arrived at the extent of funds required to fulfil your retirement goal and have to upgrade your investment planning, you will need additional resources if your salary has remained the same. Coordinating budget and expenses is necessary to enhance the surplus funds available for investment. Paying off the mortgage will boost the reserves for future use.  

The interest rates on mortgage loans are much higher than the returns on risk-free investments. Clearing the outstanding loan will not only reduce the cost of the loan but will create higher resources for investment in retirement plans

  • Building Wealth For Future Generations

Building wealth for future generations will secure their financial future and open opportunities. Fulfilling this goal is not easy. It is indeed a challenging task. You will have to set a strong financial foundation to start working towards it. 

It involves prioritising savings, creating an emergency fund, and making future investment plans. Investing in risk coverage plans like term insurance, child insurance plans, and ULIP are the best way to build wealth and provide financial security for family.

What Are Some Examples of Financial Goals?

Each individual has different financial goals. Some of the common goals are children’s education, paying off a mortgage loan, planning a vacation, creating funds for medical expenses, saving for retirement, children’s marriage expenses, upgrading the existing home, buying expensive gadgets, starting a new business or expanding the existing business, etc.

How Do You Begin Setting Your Financial Goals?

For setting financial goals you will have to list the specific goals in the order of priority. Segregate them according to the time frame and importance. The goals however should be realistic and achievable. You should set a timeline for every goal. For instance, if you are saving for a vacation, then define the date of vacation and invest accordingly. 

Cost estimates for goals are crucial to plan your investments. Inflation and future planning go hand in hand to ensure that the corpus created will be adequate to meet long-term financial goals. 

In brief, goal setting and decision-making involve making a list of goals in the order of timelines and investing accordingly to align with your risk tolerance and available resources. 

Is It Important to Make a Budget?

Creating financial goals is a part of financial planning. Budgeting is important to work towards achieving these goals. It will help manage your income diligently. It is also beneficial to track your expenses and eliminate the unnecessary ones to create resources to invest in the future. 

Summary

Setting financial goals is important because it will take you where you want to be. They change your mindset, spending habits, and your whole life. However, you need to learn how to set financial goals to be on the right track. 

Making a list of the goals in the order of the timeline, creating a budget, emergency fund creation, investing for the future, reviewing and changing the goals, etc., are all steps that help you achieve the goals you set for yourself. However, you should keep in mind that the goals should be realistic and achievable so that you are motivated to pursue them. 

FAQs on Setting Financial Goals

Q. How do I set my financial goals?

Setting financial goals is all about listing your objectives according to timeline and urgency. You should then set an investment plan to achieve each one of them.

Q. Why is it important to set financial goals?

Setting financial goals is important to manage your income in a better way. It will drastically improve your financial health as you will be creating a budget, tracking expenses, and eliminating unnecessary ones. 

Q. What are short-term financial goals?

Short-term financial goals are the ones you will have to achieve within a year. Putting aside funds in a high-yield savings account will give guaranteed returns and will help achieve these goals. Some of the short-term goals are planning a vacation, creating an emergency fund, paying off debts, etc.

Q. What is the first step in creating a financial plan?

Setting financial goals is the initial step in financial planning. Categorising them according to the timeframe and importance is the next step that helps us plan the investments to align with the goal.

Q. What are the three types of financial goals?

The three types of financial goals are short-term financial goals, mid-term financial goals, and long-term financial goals.

References:

1.https://cleartax.in/s/financial-planning

2.https://www.forbes.com/sites/melissahouston/2023/02/22/setting-financial-goals-and-achieving-them/. 

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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This material has been prepared for information purposes only, should not be relied on for any financial advice. You should consult your own financial consultant for any financial queries.

ARN - ED/12/24/19101

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