Generally, the most important things get priority in your life and same should be the case when it comes to financial planning. Planning your life to determine your goals and prioritizing them is important to ensure that you achieve financial freedom and stability.
Setting financial goals
Financial goals may be short, medium, or long-term based on your personal requirements. Generally, short-term goals are those that you want to achieve within one year. Medium-term goals are met within five years and long-term objectives are realized after more than five years.
A common oversight when determining your financial goals is including a target date. This date is crucial because you will need to determine the amount needed to meet your goal after considering the rate of inflation.
Another important aspect is to set goals that are achievable and realistic. You do not want to be disheartened by setting financial objectives that are almost impossible to achieve.
Prioritizing financial goals
Once you list down all your financial objectives, it is important to prioritize these. It is possible that your list of wants is endless. However, with the limited available resources, you may not be able to achieve all your goals.
Prioritizing your goals will be helpful in resource allocation. Furthermore, you will be able to channelize your future investments to achieve the most important financial goals.
With proper financial planning, you should be able to fulfill all your objectives. However, prioritizing enables you to focus on the most crucial objectives at that point in your life. In such long term goals, SIP is the best choice. For example, it is never too early to start retirement planning and this is more important that an international holiday or a luxury car. Alternatively, you may want to buy a home and focusing on this objective than retirement planning is more important.
How to prioritize your goals?
The most important thing while prioritizing is to differentiate between wants and needs. Wants are things that you may like to have but are not essential. On the other hand, needs are required for your existence. Differentiating between these is important because needs and wants will often clash at all stages in your life. During these times, it is vital that you know the difference so you can curtail discretionary expenses and focus on the needs.
Prioritizing your financial goals depends on the stage you are in your life. If you are young, your goals would primarily include planning for your family and maybe owning a home. As you get older, the priority may become your children’s education and your retirement.
Determining financial goals is not a one-time process. Your life will keep changing and therefore, it is important to review and modify your goals. Periodically reviewing your objectives is also beneficial in monitoring the performance of your financial plan. If you find any issues, you will be able to make changes to help you progress towards your financial goals.