Two Cents | How to set financial goals, and achieve them

We wake up every work day with a fair plan of what we want to accomplish. You may want to complete a project you have been working on. Or close an important negotiation with a customer. Most of us manage to achieve our day’s goals because we plan for them in advance. Achieving life’s most important goals — like buying a house, a car, children’s education and marriage, and your own comfortable retirement — also takes careful planning.

The process of goal planning begins with the simple step of writing down all your goals. Do you want to buy a car next year, take an international vacation on a special occasion like an anniversary, or buy your first or larger home, or perhaps save up for your children’s marriage or education?

To ensure that your goals are realistic and achievable, you need to break them up into short-term, mid-term and long-term goals. How do you decide which is a short-term goal, which is medium term and which is long term? Well, here’s a simple guide to your goals.

Short-term goals should comprise those that can be achieved in less than two years. For example, setting up an investment plan, including appropriate life and health insurance, authorising a monthly auto debit from your salary account into your investment plan, and creating an emergency fund to meet with any sudden expenses should be part of your short-term goals. Even buying a new piece of expensive furniture, a big refrigerator or a family vacation could be part of your short-term goals.

Medium-term goals are those that take anywhere between 2 and 5 years to achieve.  Buying your own apartment or upgrading to a bigger house, or buying a car would also qualify as a medium-term goal.

Long-term goals comprise our life’s big ambitions. These include a corpus for your children’s college education or wedding, savings large enough to pay off your home loan before you retire, and ultimately a retirement fund that will allow you to live comfortably after you are no longer working.

Achieving these goals requires an investment strategy that is specific to each category of the goals. Typically, it also requires disciplined investment over decades. To increase your probability of achieving your goals, start investing early in your life. Ideally, from the time you get your first pay cheque.

Once you know what are the goals you want to achieve, you can make spending decisions judiciously. For example, you will first save and then spend what’s left of your income. Finally, knowing your goals will also allow you to make appropriate investment plans that offer a greater likelihood of achieving your life’s most important goals.

So, if you want to achieve your life’s goals, you know what to do. Pick up paper and pen, and start planning for them. But, mind you, keep your goals realistic. Else, you will most likely fail.

In my next column, I will tell you how to set realistic goals.

(The writer is Managing Editor of TV9 Kannada, and formerly Managing Editor of ET Now and Business Today)