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I
Financial Goals

Aher studying this chapter, students will be able to understand:

The concept of financial goals,
The importance of financial goal,
Different types of financial goals,
How financial goals can be achieved,
When financial goals should be formed

1.1 Introduction
Most people want to handle their finances so that they get full satisfaction from each money spend
Typical financial goals include such things as a new car, a larger home, advanced career trainfng, extenaed
travel, and self-sufficiency during working and retirement years. To aclµeve these and other goals, people
~d to identify and set priorities. However, if you don't set your financial goals, you'll probably be left
wondering where all your money went. In this chapter we will study about the financial goals, their
needs, types and importance in our life.

1.2 Meaning of Financial Goal

Afinancial goal is a goal or aim that revolves around managing your finances or money. Financial goals
are targets, usually driven by specific future financial needs. It can involve saving, spending, earning or
 ~4JILI~Perso~~nal~F~,·nance~~and~'_!_P~la~nn~i~ngL-------------~~-=~=~-----
. ·. f g a budget. When you have a clea:
.al goals is Vital to crea ID al h u]
. _....,...ng To creating a list of fin anc1 d t rget is easy. That means that your go s s o c
even inn;.,~ • . c. king towar s your a • di ·d al · I d
. f what you're aiming ior, wor . fi. . 1 goals we might set as an m VI u me u t
picture o . . t d Some nanc1a . fi
be measurable, specific and time onen . d our children to college, or managmg our nances tr_
. for a comfortable retirement, saVIng to sen t to be-financially-in the next five, 10 anc
saving ch Financial goals are where you wan .
enable a home pur ·ase.
20 years. Or even next year. b. t· you set for how you'll save and spend money
nal big-picture o Jee ives .h . ,· ft
Financial goals are the perso .' . h further down the road. fat er way, its o er.
The can be things you hope to achieve in the ort term or
easi:r to reach your goals if you identify them in advance.

Examples of Anoncial Goals Include:

• Paying off debt.
• Saving for retirement.
• Building an emergency fund.
• Buying a home.
• Saving for a vacation.
• Starting a business.
• Feeling financially secure.

1.3 Need of Financial Goal

-Having financial goals can help shape your future by influencing the actions you take today. For example,
say your goal is to pay off a credit card bill. You might cut back on takeout dinners and use the money
you save to make extr-a payments instead. Without establishing that goal, you're more likely to continue
spending as usual while your debt piles up.
Like all expenses, financial goals should be included in your budget. That ·way, you can take concrete
steps toward reaching them while leaving room for other costs.
Identifying goals and creating a realistic plan for them allows you to track progress-and can motivate
you to keep going. Even if you fall short, you might develop some healthy money habits along the way.

1.4 Types of financial Goals

Financial goals are most effective when they are set with goal dates. Goal dates are target points in the
future when you ~xpect to have achieved or completed certain financial objectives. They may serve as
progress checkpomts toward some longer term financial goals and/or as deadlines for others. There are
several types of financial goals:
• Short-term goals
• Mid-term goals
• Long-term goals
a

Financial Goals 11 5

(i} Short term·Financial Goals

short-term financial go~s .~ e set each_ year and cover a 12-month period. They include making
substantial, regular contnbutio~s to savings or investments in order to accumulate your desired net
warth• These are smaller financial targets that can be reached within a year. Short-term goals become
the key input for the cash budget, a tool used to plan for short-term income and expenses Short-term
. tanning should also include establishing an emergency fund with 3 to 6 months' worth of income. This
;pedal saving~ a~count ser~es as safety reserve in case of financial emergencies such as a temporary loss
of income. 1h1s includes thmgs like a new television, computer, or family vacation. .

(ii) Mid-term/Intermediate Financial Goals .

Intermediate goals bridge the gap between short- and long-term goals, and both intermediate and short-
term goals should be consistent with those long-term goals. Typically, midterm goals take about 2 to 5
years'to achieve. A little more expensive than an everyday goal, they are still achievable with discipline
and--hard work. Paying off a credit card balance, a loan or saving for a down payment on a car are all
mid-term goals.

,(iii) ;'.Long-term Financial Goals

''lrus type of goal usually indicates want and desires for time period more than 5 years out to the next
30:years or 40 years to achieve. Although it's difficult to pinpoint exactly what you -will want 20 years or
30.years from now, it's useful to establish some tentative long-term financial goals. However, you should
,re.c.ognj.ze that long-term goals w!1l change over tim~ and that -you'll need to .revis.et);iem-accordingly.
.If the_goals seem too ambitious, you'll want to make them more realistic. If they're too conservative,
you'll want to adjust them to a level that encourages you to make financially responsible decisions rather than .
·sqrian~er-surplus funds. Some examples of longterm goals are saving for a college ~dq.cation or a new home.
!'·

. UQ)ess,you att~ your short-term goals, you probably won't achi~ve your intermediate or long-term
goals. It's,tempting to let the desire to spend now take priority over the need to save for the future. But
by malting some short-term sacrifices now, you're more likely to have a comfortable future. If you don't
realize this for another 10 or 20 years then you may discover that it's too late to reach some of your most
important financial goals.
Examples of Personal Goals
These are some of the example of personal goals classified them into short term, intermediate and long
term. ·

2· Pay off college loans

3· Build an emergency fund
4. Buy a house
5· Make home improvements
Contd ...

Ill
 6 11 Personal Finance and Planning

Short1ffth.
6. Buy a vocation home
7. Buy a new car
8. Have children
9. Finance children's education
10. Buy major luxury items
11. Buy new furniture or appliances
12. Enjoy an expensive vocation
13. Take time off from work
:\. { / "
14. Start your o~ business
15. Retire early
16. Live in style after retirement

1.5 Develop Anancial Goal Chart

Developing a financial goals chart is a good way to begin this process. Here are the five steps you should
follow in order to set up your goal chart:
I. Write do\vn one personal financial goal. It should be specific, measurable, action-oriented,
realistic and it should have a timeline.
if is
2. · Decide your ·goal short-term, mid-term, or long-term, and create a timeline for that goal.
This may change at any ~e based on your situation. ·
3. Det~rmine ho~ much money you need to ·save to reach your goal and separate that amount by
the month and/or year.
4. Think ofall ways you can reach that goal. Include saving, cutting eXJ;>enses, earning extra money,
or finding additional resources.
5. Decide which is the best combmation of ways to reach your goal and write them down.
All of that might sound daunting, but it's best to set incremental goals. Prioritize, then achieve. After
accomplishing some of the easier goals, you gain confidence in your decision making. That provides
motivation-to achieve the·more-difficult targets that require more~time 'and "discipline:·..

1.6 Steps to Set Anancial Goal

"Where will you be financially five years from now? 10 years from now... ? 20 years from now... ?" You
may get answers like "I will be financially ~tronger': "I want to be financially better': Are these answers
specific? If you don't know where yol! want to go exactly, there is no focus. Though setting financial
goals might seem to be a daunting task but if one has ff, will and clarity of thought, it is rather easy to
ake financial goals in life. Therefore while framing the financial goals they need to be to set Specific,
' --asurable, Achievable, Realistic and Time bound Financial Goals. That is S.M.A.R. T. Financial goals.
:e are the 5 steps to be followed to set the financial goals.
-
_____ Financial Goals lr7

1. Be Oeor About the·Obiectives

AnY goal (financial) _without a clear objective is nothing more than a pipe dream. And this couldn't be
more troe for financial matters. , ,. .
It is often said that savings is nothing b~t. deferred 'cbnsumption. Therefore if you are saving today,
then vou
, should be crystal clear
. about what 1t 1s for· It could be anyth'mg like kid'
· s educat·10n, ret·iremen
· t,
marriage, that dream vacati<;>n, fancy car etc. · .
· 1. Once ~e objective is de~, p~t a ~onetary vaJue to that objective and the time frame. The important
point at this step of goal settmg_ ts to list all the objectives, however small they may be, that you foresee
in the future and put a value to 1t.
.,}, .. -- -
2. Keep Them Reol~stic
It's good to·b~ aµ op~istic person but being a day dreamer is not desirable. Similarly, while it might be
a good thing to keep .your financial.goals a bitaggressive, going out.of.the.line will definitely hurt your
chances of achieving them. ·
It's·importaht that you keep your goals realistic in nature for it will help you stay the course and keep
motiv~ted, roughout the-journey... -- ·

3.-Account for Inflation

You shouliacco.unt for inflation whenever you are putting a mon~tary v.tlue to a financial objective that
is far:away ln the future. ,
For example, if one of your qnancial goal is your son's college education, which is 15 years hence,
th_en
r.- .inflation
,r~~..,..~. . _·•·:would_
--.:·.;:_. · _ ,:--· increase
·.· · · the moo~,tary:
· !,urden
, . by more than 50% if inflation is mere 3%. So always
i; .

account for inflation. · -- _ · ·

4.;.Short Term vs Long Term

Just lik~'ev~ry'ciilorie·is-!.nof.tlie sanie, the approach towards achieving every fip,ancial goal will not be the
same. It is important to bifurcate goals in short term and long term. ·- ;:.c··_::,,\: ,. - -
-As a rule' of thumb,.any financial goal, which is .due in next -3. years -should be·term'ed·a's ·short term
goal. Arty longer·duration goals are to be classified as long term goals. This bifurcation of goals int<? short
term v~lon,g.term will help:-in .choosing the right investment instrument to,achieve them. - ·,
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5...RngnciJ1tGaals.ore) ows..Not.lnspjre.d,.by Others,. _

The journey ~f ~etting financial goals ,is,an individualis~ic ~air i.e_. yo~i goal~ are rour <?Wn gpal~ apd a~e
: ~teiiqeff,ii9fr·w~(\o1~ch/~ve
0
~em:,;4 wt
Iot. 9.fti~ es get,?n tlJ._f banr wag~m of.goal fettmg onir

i,
l e Jf~J,tiLRM..t,11.at~._~ ,~~;8,Q!,m~fgtM§~~:j'~-'--'li:?\\;'~-.. ,A - - ',-l - _j ,
: It "?P-Rrtii~t;r ~ r~?1.i~ -~ ~:,~~-t~~ y Y?;r
.:"·'·m
~d nott_inspired bysomeon::el~e: Take.a hard
look at.~his,step at: all the g~als you've set for~.afterth1s step,.you will be on the way to achieve them. __
a· : ,.; . ; ,, ; . , :; • ;

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1.7 Step to Achieve Financial. Goals

fin
.
• I goals today even for the most financially responsible
It can be very chall engmg · to achieve ancia ' •- 11 .
r ·fyou are not careful to avoid the pitfaus and distractions
. • d n't get you very 1ar 1 . ,
people. Goo d mtent~ons ofi .al plan If y~u are serious about achieving your financial goals it is
that c~ easily dethrail. your t ntanakc; proac;ive measures in pursuing your strategy. It doesn't have \o be
more tmportant an ever O l b · t t·
complicated. In fact, it should be fairly straightforward if you app Y some asic ac ics.
Here are five simple strategies to achieve financial goals: ·

l . List down Financial Goals:

•t d wn all your financial goal like buving a house, kid's education, Vacation, planning for your
W n e o ,- · · fi ·at 1 · ·
retirement and so on. You may wonder why this mechanical act of wntmg ~anc~ g~a _s IS so ~mportant.
You can be thinking something without actually realizing what that somethmg 1s. It is mtang1ble and so
it is not dearly, defined in your mind.
When you start putting that thought into words and you try expressing it, an amazing thing begins
to happen. By creating it in words, that abstract thought now takes on body, shape, form, ~ub~t~ce. It
is no longer just a thought. It becomes something which motivates you, or creates a gut feelmg ms1de.
Your dream becomes a goal the moment you write it down. Say one o~ your dreams is to buy a house;.
You dream about it a lot. But the moment you started writing it down, your mind will ask yourself "when;
where, how many square feet, how many bedrooms?" This writing gives clarity to your goal and 'it forces
your mind to find out the ways and means to achieve the goal.

2. Categories and Prioritize

When we finally take the time to seriously consider what we want to accomplish financially, it's easy to let
the mind run wild, and suddenly we're swimming in financial goals. It can be very inspiring and exciting
to envision an ideal financial future, but there is a price attached to everything and, in many cases not
everything is attainable. This prioritization will help you in creating a better financial plan. Suppose if
you are in deficit, you know which financial goal need to be compromised and which are all the financial
goals you want o achieve irrespective of the deficit. Goals need to be prioritized as essential, important or
desirable and they need to be categorized by time-frame - long term, intermediate term and ·short term.
Available_resource~ m~st fir~t be applie~ to e~se~tial short term goals, then es~ential long term goals and
so on. This categonzat1on will help you m buildmg a roadmap to achieve your goals and also in selecting
the right investment products.

3. Determine Your Costs

If yo~ don't know where y~ur target is, you'll never hit it. In financial planning parlance that means
knowmg wha~ your ~o~ls will cost in the future. Goals such as retirement must be thoroughly analyzed
to come. up With realistic numbers that don't over or understate the cost. The easiest
. way to d o th'1s 1·s to
determme the cost of the goal or event if it were to occur today d th c . f · fl t'1on
for the time-frame. an en 1actor m the rate o m a
----- - -----------------------~F~i~na~n~c~ia~l~G~oa~ls~ll~9

4. Calculate Your Savings

While financial planning is not an exact science, it must be more than a hypothetical exercise.
'Jhe numbers have to be realistic in order to take them seriously. For each of your goals, especially
your essential goals, you need to determine an amount of savings to which you can commit. The total
savings commitment_ must be fit comfortably within your budget to the extent that, each month, it is
the very first expenditure you make - automatically if possible. Saving calculators are available for free
. . hi·ch will enable you to calculate a present savi·ngs t 1c f . . .
onhne W . ra e or a uture goal with consideration for
inflation and taxes.

s. Manage Your Finances

It's 'time to start managing your p~rso~al finances as if you were running a business. Strict budgeting,
attentive cash flow management, focused:debt r:eduction and risk management are essential to maintaining
control over your finances and minimizing the impact of any unforeseen circumstances that may arise.

6. Tr~ck Your Progre~s

With fin~cial goals, you can't .just set them and forget it. It is important to establish short te~
benchmarks which will be your indicators to tell you if you are on track to achieving your goals.
·on~e you get off track the gap can widen quickly and it's much easier and less costly to make smaller,.-
more frequ_ent adjustments. It's also easier to stay motivated·- when you can see that you are meetings~<#{
t;rm berichmarks.

1.8' ·linpoitonf~peds-hi be Taken into Accoiinf 'in Goal Setti_ng ·

The finan~ial goals that one sets shall follow the "SMART" principles:
l. Specific: Toe goal should be specific and not vaguf For example, "~ want to be a wealthy person"
is not sp~cific because we are not sure for how much amount of money one can be termed wealthy.
2. Measurable: "What gets measured gets managed" - Peter Drucker.~If we have no measurement,
we will not be sure about the quantity. Hence, we have to quantify the·&oal in monetary terms, "I
want to have f s·crores':
3. Achievable: It is said that the goal we set should be such that it is a little beyond reach.but not that
level to discourage. Hence, it should be challenging but within-reach.
4· Realistic: The goal that we set should be realistic. I want ·to have 1100 crores in the next two years
is not realistic. ·
S. Time-bound: While_setting a goal, we should_specify the time 'f,y when it shall b~ achieved: For
example, if one says_that I want to_buy a three bedroom house costing f 1 crore. This .~~al satisfies
all other aspects of SMART goal except the time. If we add "in the next four years, it becomes
complete.
!.1O~l!__l~Per~:s~o~na~l.:F~in~an~c:_e::an::_d:_:P_:la:.:n::.:::nr~·ng~---------

lllustrofion of aSMART Goal

• Goal: I want to purchase a Residential Flat.
£. the down payment for purchase of a flat.
• Specific: I plan to save 1or
, Measurable: 1he down payment required is flO lakhs.
• Achievable: I plan to save every month f 40,000 from my salary.
• Realistic: I can save this amount from my current salary of f90,000 p.m.
, Time-bound: J want to purchase this flat in the next two years from now.

Asample checklist for reference:

Paying off debts Pay off all debts (<15 lakhs) in 6 years.
1. Buying Own House · Save t2crore in 12 years, for a 3BHK home in Delhi.
2. I -year Emergency Fund Save t6 1aldts for Emergency Fund in 3 years, to use in case i
3. there is NO income for 1 year.
Upgrading Car , Exchange and replace the old car with a new one worth U
4. lakhs in 5 years. -
Financial Independence Attain financial independence in 18 years by investing with ,
5. holistic financial plan.
Save ZS lakhs for children's wedding expenses in 4 years.
6. Children's Wedding
Save Z2 lakhs to revamp house in 3 years.
7. Revamp House
Save Z30 lakhs for child's higher education in 15 years.
8. Child's Education Fund

Summary
In conclusion, it can be said that if finance is me'ans for ev~rything, financial goals is the end fr
everything. Without financial goals no individual can achieve whatevef he or she wants to achieve. S1
one must start planning financial goals from a younger age, even parents should encourage their childre:
to think about financial goals.

.lf{~~dttesnbo·: d(
' JI:,;__,.,..,.-- ,
1. Define fi~ancial goals? Define the different types of financial goals.
2. What arethe·steps·followed to set the individual goals?
3· How we can:_
~c~ieye ou~finandal goals in life?
- 4. What are th~ r~as~ns fot setting up _
o,f financial goal?
5· · Define:tlitunportllnt ·aspect'tniit'Should be considered while deciding about the financial plan l
' ' ) . ·• ... ,._ / ', '