Imagine, if you can get anything that you want, that too without money. Wouldn’t it be a great thing? I am sure it would be. Now, create a list of things you would want to do when money is not a constraint. This wish list could include
- buying a dream house,
- taking your family on an exotic vacation,
- owning a luxury, or
- educating your children in world class institutes.
If you have any such longing, be positive that you are already on the right path. And, only a few steps away from converting your dreams to reality. No matter whatever your aspirations are whether personal, professional or financial, setting a goal is the first step to achieve those aspirations. Now, comes finance. Setting Financial Goals to Convert Dreams into Reality is something which you do to make sure to achieve your aspirations.
Setting Financial Goals to Convert Dreams into Reality:
“If you want to live a happy life, tie it to a goal, not to people or things”-this is what the great scientist Albert Einstein said.
To get a clear direction and sense of purpose, setting financial goals is an important step. This will help you in using the available resources in the best possible way.
Consider the following factors for Setting Financial Goals to Convert Dreams into Reality:
You should consider these factors to make sure that you are on the right track to convert your dreams into reality.
Classify your goals on the basis of time frame:
Classify your goals on the basis of time-frame. For instance, goals like
- vacation and higher education comes under short-term goals,
- buying a dream home comes under medium-term goals, and
- retirement fall under long term goals.
Such classification helps in hand picking the right instruments (Financial Instruments) to realize goals within the set time frame.
- For short term needs, you can consider options like liquid or debt instruments and fixed deposits.
- Over a time period of 15-20 years, Equity as an asset class has historically out-performed other asset classes with a CAGR of 15-16%. So, it forms the ideal investment option for medium to long term goals.
- Investing in mutual funds and equities through the SIP route can also be explored. Regular investments through SIP will unleash the power of compounding over a period of time. SIP investment is a regular and disciplined approach. It also makes the magic of compounding work for you.
Make your goals measurable:
Assess the amount of money needed to fulfill each goal of yours. Make use of many online calculators that are available for free. Figure out what your monthly saving should be in order to fulfill your goal within the set time-frame. Goals will also help to relate well with your financial habits. Good money management skills will bridge the gap between you and your goals. If you find that you have not achieved your targets, it signifies that you need to keep a check on your attitude towards investments and savings.
Don’t lose track of your goals:
The main reason for financial setbacks is the tendency to make quick returns. During the time of good markets, you as an investor starts entering to have a share of the pie without knowing the complexity involved in stock trading. A few incidents of friends or colleagues making money through stock trade also lures you to make the most of the market trends, thereby leading to unwise financial decisions. Similarly, attractive schemes like ‘get 40% return on your investments’ or ‘double the money in the limited time period’ tempt you as you want to fulfill your financial goals faster. You need to be cautious of this tendency. Keep your goals at the core and devise an organized plan that can help you meet your goals.
Do not procrastinate:
You cannot design any financial plan unless you you have a clarity on your goals. The sooner the targets are fixed, the more benefit you get due to the power of compounding. To better understand this point, let us take the example of two friends, Ram and Shyam. They both realize that their retirement is 20 years way and decide to invest. As they are aware of the fact that fixed asset investments are insufficient for creating wealth, they decide to invest in equity schemes that give a return of 12%. However, Ram is conscious of the power of compounding and starts his SIPs immediately whereas Shyam waits for two years before he starts his SIPs. If their monthly SIP amounts to Rs 1,500, we can see from the table the amount accumulated by each of them for their retirement.
Ram accumulates 7 Lakhs whereas Shyam accumulates only 5.8 Lakhs. The only difference in their investment approach is that Ram has started 2 years earlier. The given example clearly emphasizes the benefits of investing early. However, in order to start this process, clear identification of goals is a pre-requisite to design a good financial plan. If there is a delay in the process of goal setting, it would require you to set a longer time frame to reach your targets or to save more as you have to let go of the returns that compounding could have accrued for you.
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