Setting your goals in life is important. Without knowing the destination it is difficult to carve out any roadmap for your financial life. How best you achieve your life dreams rest on what goals you set in? This goal setting should start as early as you start your professional career. Although at a very young age say in 20s not much thought is given on life goals, working on it during this life stage can be highly fruitful. But you should not bow down to high aspirations. Your goal setting has to be done smartly. You cannot set goals which are vague or may not be achievable in your lifetime. Also you should not be stretching your finances beyond your means to achieve a goal.
So how you should set your goals and what are the factors you should take in consideration while penning down them.
Here is what constitute SMART goal setting:
- Specific
Your goals should be very specific and should be able to answer few questions such as who all are involved in the goal, what is that you want to accomplish, where you want to reach, what is the time you have set to achieve the goal, what are the constraints in reaching the goal and why do you want to achieve this goal. These questions ensure you know exactly where you have to go and where are the gaps. Unless you are aware of these gaps specifically, it’s difficult to create any strategy for your destination.
- Measurable
No goal can be tracked if you do not have any measures for it. Also, what resource you need to allocate can only be identified if you can measure your destination possibly in numbers. So the goals you set should be converted into monetary terms so that it can answer how much is the target to be achieved and how will you come to know that it is accomplished.
- Attainable
Each one of us has limited resources. Whatever goals you set should be achievable within these resources. Any goal which is beyond your means is not an attainable goal. So buying a Ferari is anyone dream but cannot be set a goal in next few years when you earn only R 6 lakh p.a. Similarly aiming to buy a house in the costliest area of the city when you cannot afford the budgeted house is a goal which cannot be attained within your resources. So clearly the goals you set should be looked at from the perspective of the resources you have and whether you can manage it from within.
- Relevant & Realistic
The goal you set should be relevant or I can say realistic. There should not be element of mismatch between what you are targeting and what you have. So for reaching a goal of Rs 1 crore retirement corpus you cannot assume saving of Rs 500 p.m. only. It needs a higher contribution. Similarly you cannot aim to buy a car when you do not have enough savings to pay for the downpayment. Setting unrealistic gols leads you to borrow and fall into a debt trap which actually impact your financial well-being.
- Time-Bound
When you set a target for your goal, it has to be time bound. If you want to loose 5 kg weight then by when? Or if you want to buy a house then by when?. A time horizon for your goals helps you even in prioritizing them so that you can allocate your resources accordingly. Along with risk tolerance time horizon is the key for choosing the right investing options. Most mistakes happen due to the mismatch of these two.
What You Need and What You Want?
It’s true most of the things we buy we may actually not need it. There is a thin line between a need and a want. But to set your realistic goals understanding of the difference between these two is a must. A need simply means that there are certain necessities of life like food, shelter, clothes without which living will be difficult. These needs are your basic needs and have to be met on priority. The major household expenses goes towards meeting such needs. Contrary to this there are certain items which you may want to buy but life can easily go on without them. Lifestyle expenses will generally fall under this category as they are mainly for maintaining a particular standard of your life. Many a times these expenses take the major share of our expenditures and leads to overspending. Although with progress of time many wants gets converted into need such as an ac or a car. But this progress will be in your lifestyle also and so there will be many more which will fall into a luxury. You should be able to see the difference between a need and a want. If you are able to understand this difference setting goals will be easy as you will clearly identify when your living can go beyond your means.
Goal setting require careful thought about your life and what you desire to achieve. There can be short, medium or long term goals based on when you aim to achieve them. SMART goal setting like above will make your goals more specific, achievable and most importantly you will be able to allocate your resources efficiently. A simple tool like below is helpful in setting your goals and tracking the progress-
How do you monitor your goals? Have you identified them?
Share Your views in the comments section…
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