Planning to Achieve Your Financial Goals

Often too much stress is laid on budgeting, savings and managing debt when it comes to personal finance. Still, if there is a lack of a sense of direction in financial planning, things may not work that well. It is essential to have some goal to build up to that provides much-needed motivation to put in some effort in planning your finances.

If you know what you are working towards, it always helps to plan better. You can develop a strategy around that central goal and strive to realize that goal. However, there is rarely a central goal in anyone’s life; it is mostly a series of life goals that one dreams to fulfil at different stages of life.

Work Out Your Financial Goals

 Chalk out a basic plan with your loved ones or on your own about what would you like to achieve in financial terms in next 5-10 years and work from there. You need to have a vision of how to plan right, and there is a simple way as well. Divide your goals into short-term, mid-term and long-term categories first.

Some examples could be you may want to buy a car in the next couple of years or sell your old one to finance it. You might want to go for higher education if you are in the 20s or even early 30s, though there is no age to get educated in the field of your choice. So what you plan for the next 5 years can be your short-term goals. You might be planning to buy a new home in the next 10 years. In general, things you plan to do from 5-10 years from now can be mid-term goals.

You might want to plan foreign tours and higher education for your kids in a time horizon of more than 10 years if you are young enough and anything exceeding that can be termed as part of your long-term financial goals. You might need money now to fulfill your immediate goals but it would not be wise to think only about your immediate goals.

Create An Emergency Fund First:

Before you go about planning your short and long term goals and devising a strategy to invest or save money accordingly, it is essential to think of any possible emergencies. Sudden expenses like the ones incurred on medical emergencies tend to come unannounced and often disrupt financial plans of all kinds. You might need to liquidate some of your well-planned investments to meet the requirements.

There can be other emergencies as well, which might turn things upside down without any hint. Suddenly losing a job, business losses or damages to uninsured property can be some of the examples. While it is recommended to ensure your property and business interests as far as possible, not everything might be insurable. It is best to set aside a reasonable sum as your emergency fund before investing in any financial instruments to meet your financial goals.

Choose Separate Investment Funds to Meet Your Goals

It is desirable to develop an investment portfolio where funds are distributed thoughtfully between debt and equity funds. It is always recommended to invest a relatively small sum in high-risk equity-oriented funds and invest a more significant sum in debt funds. However, here we are talking about choosing funds in keeping with your goals.

To plan for a home or higher education for kids, you would certainly want to keep risk levels to a minimum. It is then desirable to choose a mid to long term debt-oriented hybrid funds which invest both in equity and debt. Alternatively, you can select blue-chip funds or go along with index funds to meet long term goals without taking much risk.

For short to mid-term goals, you may need to choose relatively high-risk investment options. This is because any investment takes time to grow and to meet your goals for the next 5 years you would need to invest a higher sum and go for high-risk equity-oriented options. It is advisable to seek professional advice while choosing high-risk investments to avoid losses and minimize your risk levels.

Avoid Bad Debts To Meet Your Goals:

One common thing that often messes up the best of financial planning is poor debt management. If you are unable to look after your debt obligations, it may not augur well for your financial future in general. Some of the common traps that one can fall into include looking for loans with poor credit ratings.

This is often a recipe for financial disaster because if you are looking for car loans for a bad credit score, then you are bound to get higher interest rates and a repayment schedule. It may weigh down on you and make it difficult to manage other expenses.

One needs to avoid such bad debts, manage a good credit score and especially keep away from things like credit card debts that can eat into one’s hard-earned savings in no time. With your liabilities under control, you would be well on your way to meet your goals.

Conclusion:

It is essential to have financial goals, so you plan your savings and investments around them. Every aspect of financial planning is influenced and shaped by your goals at every step, and they help motivate you to do better, manage a good credit score and manage your debts well.

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