How to Set Financial Goals? – The Best Strategy

Remember as a kid how we used to save our pocket money to buy a new bat or cycle? While unknowingly, we were setting up financial goals.

As we grew up, our financial goals also changed. Buying a car, clearing student loans, buying a home, saving for a dream vacation etc. became our new financial goals.

It is very important to understand how to set financial goals to achieve them successfully.

This article shows you how to set financial goals to build the life of your dreams.

How to set financial goals

What are Financial Goals?

A financial goal is a dream with an end date. Financial goals can be short-term, medium term and long term goals. 

  • Short term financial goals include clearing credit card debt, buying a new phone etc.
  • Long term financial goals include child education, a down payment to buy your dream house, retirement etc. 

The stage of life that you are in usually determines what type of goal you want to achieve.

For example: If you’re in your 20’s then buying a new bike/car might be your short term goal. On the other hand, if you are a family man, you would have a medium to long term goal of going from renting a home to owning one. And if you have kids or you are in your early 40s retirement planning is on your mind as a long term goal.

Few Examples of Financial Goals are:

  • Making a provision for an emergency fund
  • Becoming debt free
  • Saving for a new house
  • Saving for a vacation
  • Saving for retirement
  • Starting up a business

A goal could be anything which is of importance to you and you would need a substantial amount of money for it in future.

Why You Should Set Financial Goals?

When you set goals, you get a clear picture of what you want to achieve. It changes your mindset towards money. You start saving money to reach your goals faster. 

For example: Let’s say you do not have any financial goals. Since you have no goals, there is no motivation to save money.  So you buy coffee from an expensive shop every day. You could instead make coffee at home, but the special coffee tastes better. This special coffee costs you Rs 200 per day. That’s Rs 6,000 per month. 

Now imagine if you had invested this money in a mutual fund. 

  • In 5 years, you would have Rs 4.94 Lakhs! 
  • In 10 years, you would have Rs 13.94 Lakhs! 
  • In 20 years, you would have Rs 59.94 Lakhs! 

So, after 20 years what would you prefer? – A special coffee or 60 lakhs in your bank account?

To have a financially secured future, you need to change the way you interact with your money today. The best way to do this is  to set financial goals. 

So, how do you set financial goals?

How to Set Financial Goals?

Here are six crucial steps for setting financial goals.

Step 1: Analyse your goals

Firstly, you need to analyse goals according to the time horizon and decide these things.

  • What is the current inflation rate and what are the returns you are expecting?
  • According to the current inflation and rate of returns, how many years will it take to achieve this goal?

Step 2: After you know your financial goal, differentiate it on the basis of short term or long term goal.

Step 3: Apply the SMART strategy

  • Specific: Your goal must be well defined. An unspecified goal leads to uncertain results. A specific goal must have definite answers to the ‘what, when, why & how’ of your financial plan.
  • Measurable: Your goal must be measurable. For example, if you plan to save Rs 2 Lakhs in a year, your progress can be measured by how much you save quarterly. If you are lagging, then appropriate steps can be taken to get back on track.
  • Achievable: Your goal must be well-defined so that you can actually achieve it. You must ask yourself, “Do I have the resources and capabilities to achieve my goal?” If yes, then your goal is achievable.
  • Relevant: Your goal must establish relevant and realistic qualities. If you save Rs 10,000 per month and want to buy a house in Mumbai then it is an unrealistic goal and will lead you to failure.
  • Timely: Your goal must have a set time period. It must include a starting date and a target date. If the goal is not time constrained, there will bring no sense of urgency and no motivation for you to achieve it.

Step 4: Take into consideration your risk appetite.

  • Are you a conservative investor?
  • Are you a aggressive investor?

Step 5: Once you have created a structured goal based financial plan, the next step is to decide on the investment option to achieve your financial goals. One of the best ways to invest is through mutual funds SIPs as it helps you to balance out market volatility and provides good returns. You can also invest via expert curated RankMF baskets which would give you the ideal results of a goal based financial plan.

Step 6: Monitor your progress from time to time. Make sure that you are reaching your benchmarks.

How to Achieve Your Financial Goals?

Now that you have made a SMART financial plan. If you examine your own goals, you’ll discover that some are broad and far-reaching, while others are narrow in scope. 

Your goals can be separated into these three categories:

  • Short Term Goals
  • Medium term Goals 
  • Long term Goals

Short-term financial goals take up to 3 years to achieve. Examples may include taking a vacation, buying a new bike.

Medium term financial goals can’t be achieved right away. They have a 3-7 year time frame. Examples: Planning your wedding, starting a business, etc.

Long-term financial goals may take from 7 years to more than 10 years to accomplish and require a longer commitment. For example buying a home, saving for a child’s college education, or a comfortable retirement, etc.

Once you know the time horizon of your investment, you can invest and earn good returns from various investment options in India.

Watch this video to understand how to build financial planning

Here is a basic Goal Based Financial Grid

GoalsRemarksSuitable Asset Class
Emergency fundsEmergency Funds Amount = Your monthly expenses (including household expenses, travel, EMIs etc for 6 months)Fixed Deposit, Liquid Funds
Buying houseYou can accumulate funds for downpayment which is 20%-30% of the property value.SIP in Mutual Fund + SIP in Blue chip stocks
Child’s educationChildren’s higher education is getting expensive these days. So, from the year your child is born you should start saving + investing through SIPs in various asset classes.SIP in Mutual Fund + SIP in Blue chip stocks
Retirement corpusIf you wish to retire early, you have to plan your retirement journey in advance with SIP’s.SIP in Blue chip stocks
Buying a carInstead of taking a vehicle loan, you can plan well in advance for buying a car without any financial burden.Fixed Deposit + Recurring deposit

If you want to achieve your goals, then no matter if it is a short term, medium term or long term goal, mutual funds are the preferred investment option. 

RankMF is India’s best mutual fund research and investment platform as it provides the most honest answer to “Kaunsa Mutual Fund Sahi Hai?”

As most investors want to invest in mutual funds but have no idea which funds to invest in!

But don’t worry as RankMF has expertly curated goal based baskets for investors with different financial goals. These baskets are a pool of quality funds bought together to achieve,

  • A financial goal such as tax saving, retirement planning, child education or
  • The time horizon or
  • The risk taking ability of an investor.

These funds are analysed daily on the basis of more than 2 crore parameters to expertly help you achieve your financial goal.

So, open a FREE RankMF account and invest in the goal based mutual fund basket today!

Was this article helpful?


Raise a Support Ticket - Samco

Related Articles

Leave A Comment?