We often hear the term form experts “What are your financial goals?” but probably a lot of non-finance people aren’t aware of what are financial goals or don’t know how to set financial goals for themselves.

Setting financial goals is the first step towards making financial plans and then investing to achieve those financial goals.

Wrong goal setting can lead to disastrous investment decisions. so let’s learn about financial goals and how you can set some up for your self in easy to DIY steps.

What are the financial goals?

Financial goals in simple terms are goals and objectives that you set for your self to decide how you will save money for things that you want to buy or experience.

For example, I want to buy a house or I want to buy a car or I need Rs.25,00,000 for my daughters’ wedding.

In simple terms, this is knowing or telling your self on what you want to do with the money you earn, or how much you need to save for things you want to buy or experience.

Now that you know what are financial goals, let’s learn how you can set financial goals for your self.

How to set financial goals? Steps to set up financial goals

There are certain basic steps you need to follow to get your financials goals right.

Step 1: Understand what are SMART Goals.
Step 2: Write down some of your goals
Step 3: Ask your self these questions

Is this goal practical? Do I have enough resources or income to achieve this goal? is this achievable? is this goal really important to me?

and you should be able to do a great job in setting up financial goals for your self.

There are various thumb rules to make financial goals for your self, once a famous rule of thumb is SMART.

Financial goals should follow the SMART format, meaning all goals should be qualified to be -> SMART.

What is SMART or what are SMART goals? lets deep dive into learning this concept.

SMART Goals are

S – Specific
M – Measurable
A – Achievable
R – Realistic
T – Time-bound

Now let’s understand each of these elements of financial goals

S – Specific

Your goals should be very specific, meaning they should include specific details like what, how and when etc. “I want to buy a vehicle” is not specific but “I want to buy a car so that I can commute to the office daily in comfort” is a more specific goal.

M – Measurable

It is often said that whatever is measurable is achievable. If you can not measure your goals you probably won’t be able to achieve them. “I want to buy a house that cost INR 90,00,000″, now this is a measurable goal you know how much money you need to achieve your goal. I want to become rich and buy a Penta house is probably a poor goal description comparatively.

A – Achievable

Ask your self do I have resources and income to achieve my goals? My yearly income is INR 30,00,000 and I want to buy an island in the Caribbean would probably be a non-achievable goal. Be reasonable why setting financial goals. This does not mean that you should not be ambitious. Have aggressive goals and probably you will find a way to make more money to earn them. Achievable goals in no way mean one should not set up aggressive goals and just compromise with your dreams.

R – Realistic

I once got a call from one of my friends who had just started his career. He secured a nice job from his campus and his first salary was INR 35,000 / month. This guy wanted to buy a BMW in 6 months of his first job…
Now is this realistic? I would say ‘no’. These unrealistic goals will only disappoint you. Goals should be the realistic overestimating size of your goal or underestimating size of your goal both can harm your financial planning process.

T- Time-Bound

The easiest thing to understand when you set a financial goal is you need to set a deadline for your self. We cannot say I will buy a house whenever I have money… It has to be I will buy a house that is worth INR 90,00,000 in ____ Years. Now you exactly know how much time you have to save up to buy this house and also this tells you how much you need to save each month for this goal. Time should be very relaxed or not very aggressive. Give yourself sufficient time to save up and be practical when setting time for your goals.

When setting up financial goals you should not forget the above elements.

Evaluate your financial capability and needs. If you already own a house, probably buying another house would not be your first financial goal. Its very subjective. Goals are personal to you and you can set any goals for yourself.

Just remember, that you can’t skip an important need from your goals like security, shelter and basic needs. If you do not have a house, then million-dollar advice would avoid having a goal to buy a sports car.

Having said that it is completely subject to one’s dreams, needs and wants.

Common financial goal template / ready to use financial goals.

I want to buy _______ Car that cost ________ in next _____________ years / months.