Financial goals are investments, savings, or spending targets you want to achieve within a certain period. Like any other goal in life, financial goals must align with your long-term plans. Usually, the stage of life determines what type of goals you wish to achieve. For example, as a young adult, your goal might be to save up for a specialized master’s degree or an MBA. But after working for a while, your financial goal might change or shift towards building a home with your partner, a wedding, or retirement.
Setting financial goals is a good practice and made easier with an understanding of personal finance. This includes knowing investment options you have as well as wealth preservation and risk management products in place. It is imperative for you to build a solid foundation while continuously build on that foundation to achieve your financial goals. That way, your financial plan won’t just be mere wishful thinking.
Why you should set financial goals
In Alice in Wonderland, the Cheshire Cat said, “If you don’t know where you are going any road can take you there.” For you to know where you are headed financially, you need to first set up goals. Without this clearly in place, it would be harder for you to track your progress and manage your priorities. With hindsight, you’ll get to see how far you’ve progressed and what achievements you’ve made along the way. When you then succeed in achieving short-term goals, you will be more motivated to achieve long-term goals.
Examples of financial goals
As previously stated, financial goals must be specified. The more detailed, the better. Here are some financial goals you might want to consider:
Make a budget and stick to it
Many people undervalue the importance of budgeting. Making a budget that clearly defines the amount of income and expenses fixed in your finances is the best way to understand your financial limits. Budgeting gives you an idea on how much money you can set aside for your investments each month.
Pay off all the debts
Without realizing it, paying interest on debts can consume a lot of cash flow (which you could use for other purposes). After paying off all your debts, try to utilize your credit facilities sparingly. Without a good credit management and tracking habit, your outstanding debt could balloon without you realizing it until it is too late.
Create and maintain an emergency fund
Setting up an emergency fund should be a top priority. Normally emergency funds should cover your expenses for at least three months. A more prudent amount is 6x your expenses. This allows you some breathing space while you get yourself back on your feet. Especially in this era of a fragile and volatile job market, emergency funds are critical. You can use it for various unexpected problems. When you have to draw from your emergency fund, remember to replenish the expense as soon as possible to maintain a healthy rate.
Plan and save for retirement
The temptation to consume is hard to resist, so saving for retirement is a difficult concept to implement. However, saving, particularly for retirement, is critical. Think of the savings as a way so that later you can live comfortably after retiring from work. You may have some set aside in statutory contributions like the Employees Provident Fund (EPF). Consider other retirement plans like the Private Retirement Scheme (PRS) as well as other investment vehicles.
How to set financial goals
Here comes the million ringgit question: how exactly do you set financial goals? What are the best financial planning measures to attain the desired goals?
Figure out what matters to you
Create a list of your needs. Include daily expenses and urgent needs as well as those that seem distant or appear to be wishful thinking. Then, determine which should be the highest or immediate priority. This simple process would help you to focus on which goals are the ones you need to work on, the time frame you have, the risks you are willing to take as you work towards them.
Outline short-term, medium-term, and long-term plans
In addition to setting priorities, divide your financial objectives into three categories: short-term (1-24 months), medium-term (2-5 years), and long-term (beyond 5 years). Determine which ones can be achieved soon and which require more time.
Apply a SMART-goal strategy
SMART stands for Specific, Measurable, Attainable, Relevant, and Time-bound. Your objective cannot simply be “debt-free.” Try to be explicit, such as “paying RM200,000 debt in Q2 2023.” Using this SMART technique to implement a plan will make tracking and measuring success easy. The ability to track these goals boosts your chances of success dramatically.
Create a realistic budget
Budgeting is more than keeping track all your income and expenses. It helps you figure out how much expendable income you have while taking into account your goals. It also helps you figure out leakages which you can cut or change to increase your savings and investment. Set your financial goals based on those records.
Monitor your progress
The next part is often seen as the most painful aspect of financial planning. It requires a lot of self-reflection, accountability and introspection. Monitoring progress allows you to know how far are you from your goals and whether the other goals are still feasible. Accountability is crucial to ensure that you attain the standards you have set for yourself. If you find yourself short of your goals, take time to evaluate habits, activities, expenses, as well as factors that contribute to that. From there, find corrective measures which you can implement immediately. Sometimes it is important to consider whether the goal remains relevant or realistic at this juncture.
Remember that your financial goals are not set in stone. They evolve at every phase of life. Thanks to the advancement of technology, you can track your expenses and monitor your habits. Technology also creates the accessibility to materials and opportunities which we have never seen before. But technology alone is an external factor. It needs to be coupled with internal factors like your own habits and discipline in financial planning.
Another thing to remember is that you don’t have to wait for the “right time”. The best financial goals are those you set for yourself and strive to achieve. Begin right now, where you are, and use what is already there. As time goes on, you’ll find a better way as new opportunities open up following experience, education, and liquidity.
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