Financial Goal Setting Guide

Setting financial goals involves a thorough process of first understanding the purpose behind your goal type, planning according to associated factors, and regularly reviewing your progress. A recent survey shows that, despite having strong saving habits and ambitious financial planning, only 30% of the respondents were able to fulfil all of their financial goals in 2024. This emphasises the importance of effective planning, without which your financial goals can remain unattainable. This financial goal setting guide addresses the types of financial goals you must have and provides a step-by-step guide for effective financial goal setting. Read on!

Types of Financial Goals
 

Most financial goals fall into one of three categories based on their timeline. By understanding these different types of financial goals, you can categorise and prioritise them based on what’s important for you.

Short-Term Goals (Up to 1 year): Short-term goals apply to what you want to achieve in the near future. They provide a quick, attainable win with which you can build momentum for your longer-term goals. Some examples of short-term goals could be building an emergency fund worth 3-6 months of expenses, paying off credit card debt, or saving for a gadget or a short vacation.

Mid-Term Goals (1 to 5 years): Mid-term goals need time and committed savings. They are mostly major life events. For example, saving for a down payment on a car, paying for a postgraduate course, planning a wedding, or accumulating funds for investment in a small business.

Long-Term Goals (Over 5 years): These goals are typically associated with foundational events, that form the foundation to your life or your family’s future. It requires planning and investment consistently over time. Some common examples for long-term goals include saving for a down payment on a house, setting aside funds for your child’s higher education, and building a dignified retirement corpus.

Also Read: Turn Your Personal Loan Into a Wealth-building Tool

Setting Your Financial Goals - Steps to Follow

Assess Your Current Financial Situation 
Before you plan your journey, you need to know the starting point. This means calculating your net worth, which is simply the difference between your assets (what you own) and your liabilities (what you owe).

Your Assets: This includes your bank savings, fixed deposits (FDs), stocks, mutual funds, gold, and the current value of any property you own.

Your Liabilities: This includes outstanding credit card balances, personal loans, car loans, home loans, and any other debts.

It’s also crucial to understand your monthly cash flow. So, track your income from all sources and categorise your expenses for a month or two. This will help you be aware of where your money is going and identify areas where you can cut back to free up cash for your goals.

Also Read: How to Set and Achieve Short-Term Financial Goals: A Step-by-Step Guide

Define and Prioritise Your Goals 

Once there’s a clear financial picture, it can set the stage to define what you want to achieve. The SMART framework is a useful tool to better articulate your goals.

●    Specific: Instead of “save more,” a specific goal is “save for a down payment on a home.”
●    Measurable: How much do you need? “Save ₹10 Lakhs for a down payment.”
●    Achievable: Is this realistic given your income and timeline? If not, adjust the amount or the timeframe.
●    Relevant: Does this goal align with your life plans and values?
●    Time-bound: Set a deadline (usually longer than your planned timeline, with a buffer of extended time). “Save ₹10 Lakhs for a home down payment in the next 5 years.” 

Once you’ve listed your SMART goals, prioritise them. You can’t work on everything all at once. Identify those goals that are non-negotiable, like creating an emergency fund or paying off high-interest debt, then set aside wants that can wait for later.

Create a Financial Plan

You can develop a detailed budget by distributing the income between essential expenses and goal-based savings. To start with, go with the 50-30-20 budgeting rule: 50% for needs, 30% for wants, and 20% for savings and investment.

To ensure you stick to this plan, you can make your savings automatic. Set up Standing Instructions (SIs) or Systematic Investment Plans (SIPs) to transfer money from your salary account to your savings or investment accounts on a fixed date each month. This approach is one of the most effective ways to build wealth and remain disciplined.

Review Your Financial Goals 

Your financial plan is not fixed; you must schedule quarterly reviews to track your progress against the target. If you’re falling behind, find out why and make adjustments. But if you are ahead, then you can either opt to finish that goal sooner or add a new goal. This regular review process keeps you up-to-date and ensures that your financial plan remains relevant to your life.

Also Read: 7 Useful Tips for Money Management

To Conclude

Financial goals give your life a clear purpose and definition while providing you with control over your future. By categorising your goals, assessing your current standing, creating a robust plan, and reviewing your progress regularly, you build a resilient financial foundation. This structured approach gives you confidence to navigate life’s ups and downs and turn your goals into tangible achievements.

Frequently Asked Questions

What is a good financial goal for a beginner?
A good financial goal for a beginner would be to put together an emergency fund. It should ideally cover three to six months of essential living expenses. This safety net protects against a few unforeseen circumstances, such as job loss or a heavy medical bill, and forms the base on which all other financial planning rests.

How can I set realistic financial goals?
To set realistic goals, first check your income, expenses, and amount already saved. Use the SMART (Specific, Measurable, Achievable, Relevant, Time-bound) framework to define what you want to achieve. Be sure that the goal fits into what you can afford to do with your finances and with your timeline and start with small ones.

How often should I review my financial goals?
It’s recommended to assess your financial goals at least once a year. You should also revisit your plan after any major life event, such as a marriage, a new job, the birth of a child, or a significant change in income, to ensure it remains aligned with your current circumstances.

What is the first step in financial planning?
The very first step in the financial planning process is to assess your current financial state. In effect, you try to measure your net worth by listing all the assets you own and listing your liabilities; and then monitor your income and expenses monthly to understand where your cash flows.

Is it okay to take a loan to achieve a financial goal?
Yes, it can be okay to take a loan to achieve a financial goal, especially if it’s considered “good debt” i.e. it helps you create a tangible asset or income-generating opportunity, such as education, a home, or a business. However, it’s crucial to borrow responsibly.