Do you have big financial aspirations but no clue about how to put your grand plans into action? It’s time to stop procrastinating.
Here are some tips to help you get down to business, define your financial goals, and start working towards them.
Assess Your Financial Situation
Your financial aspirations may not be the same as your friend’s or colleague’s, and similarly, your current financial situation may also not be the same as theirs.
Take a close look at where you stand financially and that will help you decide where you need to get in the pursuit of a financially secure future. For example, if you don’t have any existing savings or inheritance to fall back on financially, you’ll have to figure out how to optimize your income and how much to save in order to enjoy a comfortable retirement.
State Your Goals Clearly
‘Saving more’ is not a financial goal, and neither is ‘spending less’. Your goals need to be specific and quantifiable. For example, you need to save at least 25 percent of a property value to make the down payment.
To make sure your goals are achievable, they must also be realistic. Keep in mind your financial resources and commitments as you set your goals.
Decide On A Time Frame
From a financial standpoint, we all have different objectives, and not all of these can or need to be achieved right away. It’s always best to split your goals into short, medium and long term, and then start prioritizing and working towards them.
[Related: Have You Tried The ‘Zero-Sum Budget’ Yet?]
Short-term goals: These could be very near-term goals for the next six months to one to two years, like building an emergency fund or saving up a fixed amount for your annual vacation.
Medium-term goals: These goals can be set for the next three to five years. Examples include saving up for a down payment on a new house or paying off a student loan.
Long-term goals: These goals should be set for longer terms above five years, going up to 10-15 years based on your specific requirements. For example, saving for retirement and building your child’s college education fund are the ideal long-term goals for many.
Figure Out How To Get There
So you know what your goals are and how much time you need to attain them, now you have to figure out your plan of action.
If your goals require you to save a fixed amount of money every month, create a budget. Having a budget will ensure you don’t overspend, and it will help you systematically allocate your income towards the budget categories you need to prioritize – Paying off debt, saving for retirement, building an investment portfolio and so on.
If your long-term goal is to save for retirement, you need to figure out how much you need to save every month towards building a retirement corpus that will ensure financial security in your retirement years.
If debt repayment is your medium-term goal, you have to prioritize which debts to pay off first. This could mean paying off the costliest one first, i.e., the one with the highest interest rate or getting rid of the smallest one first – Whatever route you take, just make sure you have a strategy in place to help you stay focused.
Track Your Progress
Reviewing your progress is the last and most important bit. You need to constantly look at and track your finances to avoid straying off the course.
If you’ve invested money, keep a periodic check on how those investments are doing and make changes in your investment portfolio if needed. If you’re saving for retirement, check to see if you’re contributing enough or falling behind schedule.
And feel free to shake things up and reassess your financial goals. Your financial situation may change over time, and this may cause a change in your long-term financial strategy. For example, you may decide to retire early if you’ve managed to build a big fat nest egg for your retirement.