Dreams are something that anybody can have. However, it takes courage, to transform those dreams into objectives and see them through. Are you ready to put your money to work—to create and achieve financial goals?
Being a grownup is accepting that there is no magical godmother who grants your financial wishes. You'll have to put in some effort to meet these financial targets. But, at the end of the day it’s all worthwhile.
Before we get started, let's define financial goals. Other life objectives, such as being fit or healthy, becoming more deliberate with your time, or learning a new skill, are undoubtedly on your to-do list (particularly around the new year). But what about establishing smart financial habits?
Financial objectives are where you want to be with your money i.e., short-term and long-term goals. It’s important to set these objectives in order to start goal-based savings.
Things will not change if you do not establish goals. You'll remain exactly where you are—in the world of wishful thinking. And, while it's a great place to fantasise, it's not a place to live.
Your dreams will take on new life and direction as a result of your financial objectives. Don't put an end to your dreams. Smart savings goals should be set instead.
There are certain objectives that we all have in common, and then there are a few that are unique to each of us. For example, after retirement, you could want to establish your own restaurant. In that situation, aside from your retirement fund, you would need enough start- up funding to get the firm off the ground. Goal saving will make you feel more driven to work toward them.
These are half-baked ideas when you say things like "I want to save for my children's education" or "I want to save for a car." You must be more explicit when establishing a financial objective. For instance, I'd want to save Rs 1 crore for my children's education or Rs 12 lakh for a car. Having a goal in mind gives you a head start in the competition of life.
Assume a certain degree course at Yale University costs Rs 75 lakh at the moment. You can now make an educated guess about how much it will cost when your child is ready to attend college, based on the inflation rate in the educational industry and plan your goal savings accordingly. You can also use a financial goal tracker for this purpose.
This principle holds true in all aspects of life. Assume you want to run the whole 42-kilometer Mumbai Marathon. While this is a wonderful ambition to have, it may be out of reach for most individuals due to the physical requirements. A 10km or even 21km run is more feasible.
Similarly, while setting your goals, you must evaluate your income and costs to ensure that the goal is attainable. So, while purchasing a sea-facing house in Mumbai is a fantastic dream to have, you may be able to attain it if you simply save for it and do not spend any money for years. Something that is not possible in actual life.
The time-frame should be selected wisely so that it does not become too onerous given your present financial circumstances, but it should also not be so long that it entirely defeats the purpose of goal saving. Retirement and children's education are both time-bound goals. Other financial obligations, such as saving for a house and a car, are up to you how you set the time for each objective — so be wise about it. Be realistic about the time frame as well. If you are not investing a large quantity of money, hoping to buy a BMW in three years may be overly optimistic.
The last (but definitely not the least) step is to think about investments. Think log-term and choose goal saving investments that give favourable returns while suiting your risk appetite.
*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time
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Make responsible financial decisions. Consult with your financial advisor before making any decisions on insurance purchase.
