If you’re working hard to earn money, yet still find yourself wondering where it all went at the end of the month, believe me, you’re not alone. I made the same mistake in my early days. At that time, my thinking was simply that as long as I was earning money, everything was fine. But gradually, I realized that having money without a clear direction can also become a problem.
From here the concept of what are financial goals became clear to me. Financial goals aren’t just about big dreams; they’re a roadmap that tells you when, where, and why to use your money. In this article, based on my own experience, I’ll explain how to set financial goals practically, without complicated theories, so that even a beginner can follow along.
The goal of this guide is not just to motivate you after reading the article, but to empower you to actually write down your goals and start working towards them.
What Are Financial Goals?
In financial terms, simply put, financial goals are the well-thought-out plans for which you save or invest money. Just thinking “I want to be rich” doesn’t constitute a proper goal. A goal is when you know how much money you need, when you need it, and what you’ll use it for; it’s crucial to define your objective.
For example, building an emergency fund, buying a house, educating your children, or retirement planning are all financial goals. Once you have a clear understanding of your financial goals, your money will work for you, instead of you working for your money.
Understanding assets and liabilities is also very important; if you’re unclear about the difference between assets and liabilities, you can read our detailed guide on assets and liabilities: How to Understand Assets and Liabilities in Real-life. Because until you know what assets and liabilities you have, you can’t set realistic goals.
Why Financial Goals Matter More Than Your Income?
Many people think that their financial life will automatically improve as their income increases. I myself thought that. But the reality is that without goals, an increase in income only leads to more confusion.
Consider two people earning the same salary. One has clear goals, while the other simply spends indiscriminately. After a few years, the difference is clear. The first person is financially stable, while the second is stressed.
This is where the importance of financial goals becomes evident. Goals teach you discipline. They determine where money should be spent and where it shouldn’t.
If you don’t have a clear understanding of basic financial concepts, it’s essential to first understand what finance actually is. For this, you can refer to this article: What Is Finance and How Does It Affect Our Daily Life?
Types of Financial Goals
The biggest mistake I made in understanding financial goals was that I viewed every goal through the same lens. I thought a goal is a goal, whether it’s for 6 months or 20 years. Later, I realized that the time factor is the most critical element in financial planning.
Therefore, dividing financial goals into three categories based on time becomes practical and necessary. This provides clarity on what kind of money and what kind of planning each goal requires.
Short-Term Financial Goals
Short-term financial goals are those with a time horizon typically between 0 and 2 years. These goals may seem small, but they form the foundation of financial discipline.
In my experience, most people take goals like building an emergency fund lightly. They think, “Everything is fine right now,” but this very thought becomes the biggest risk. Short-term goals include building an emergency fund, paying off credit card debt or personal loans, or saving money for a small gadget.
The key characteristic of these goals is that safety is more important than returns. If you take risks with money meant for short-term goals, that money won’t be available when you need it.
Medium-Term Financial Goals
Medium-term goals are those for which you allocate 3 to 7 years. This is the phase where people are most confused. I myself made many wrong decisions at this stage because the goal was clear, but the planning was incomplete.
Buying a car, saving for wedding expenses, or pursuing a major course or skill upgrade for your career are all examples of medium-term goals. The challenge here is that the time horizon is longer than for short-term goals, so people take risks due to overconfidence, but it’s not long enough to recover from mistakes like with long-term goals.
Finding the right balance at this stage is crucial. Neither too conservative nor overly aggressive.
Long-Term Financial Goals
Long-term financial goals are the most important, but paradoxically, they are the ones that are most often postponed. Retirement planning, children’s education, or buying a house – these are goals with a time horizon of 10 years or more.
In my opinion, the biggest enemy of long-term goals is delay. People think, “There’s plenty of time,” and this very thought proves most expensive in the future. Long-term goals demand patience and test consistency.
In a country like India, ignoring inflation while planning for long-term goals is a huge mistake. I myself made this mistake in the beginning, planning based on current costs without calculating future costs. Later, I understood that inflation quietly eats away at your purchasing power.
The Ministry of Statistics and Programme Implementation in India regularly publishes data on how inflation increases expenses over time, making the planning of long-term financial goals more realistic.
Common Financial Goal Setting Mistakes
Now I’m talking about mistakes that aren’t found in theory, but are practically made by almost every beginner. I made them too, and it’s by learning from these mistakes that I have this clarity today.
Unrealistic Goal Setting
The most common mistake is setting unrealistic goals. For example, setting a target of building a very large corpus in 1 or 2 years, without considering the reality of income and expenses. Motivation is high initially, but after a few months, frustration sets in, and the entire plan is abandoned.
It’s not wrong for a goal to be ambitious, but it should be achievable. Otherwise, instead of pushing you forward, the goal mentally exhausts you.
Goals Without Money Management
Another big mistake is setting goals but not learning to manage money. If there is no budgeting, expense tracking, and cash flow control, then goals remain just words written in a diary.
I myself wrote down goals at one point, but at the end of the month, I couldn’t understand where the money had gone. This is where I understood the importance of money management. If you lack clarity on this concept, this article will help: What Is Money Management and How Does It Improve Your Financial Life?
Ignoring Emergency Fund
Ignoring an emergency fund is perhaps the riskiest mistake. People start investing, but they think about an emergency fund later. The problem arises when a medical issue, job change, or family emergency comes up. An emergency fund not only provides financial security, but also peace of mind. An Emergency Fund Calculator can be a practical starting point for planning.
Proven Methods to Set Financial Goals
Now, let’s move beyond theory and discuss the methods I’ve personally applied and that have yielded real-world results.
The Clarity Method
The first question I ask myself, and which I advise every beginner to ask, is, “Why is this goal important to me?” When the reason behind the goal is strong, consistency comes naturally.
If the reason is weak, the goal is abandoned at the first sign of difficulty.
SMART Goals Explained Simply
SMART goals mean that the goal is specific, measurable, achievable, relevant, and time-bound. This framework sounds technical, but in reality, it’s a tool to reduce confusion.
When the goal is clearly defined, decision-making becomes easier.
Reverse Goal Planning
Reverse goal planning completely transformed my financial thinking. In this method, you first decide how much money you need in the future, and then work backward to calculate how much you need to invest each month.
This approach reduces guesswork and provides greater clarity. A SIP calculator is quite helpful for monthly planning.
Practical Financial Goal Planning Steps
Now let’s get to the ground-level steps that any beginner can follow. These are the steps I am telling with my experience.
Step 1: Income and Expense Clarity
Until your income and expenses are clear, no financial planning will be effective. I myself developed the habit of writing down my expenses, and only then did I understand where my money was leaking.
Step 2: Emergency Fund First
An emergency fund should always be a priority. Ideally, you should have at least six months’ worth of expenses set aside. It’s best to choose safe instruments for this. An FD Calculator or RD Calculator can be useful for calculations.
Step 3: Goal-Wise Investment Selection
The same investment strategy doesn’t work for every goal. Safety and liquidity are essential for short-term goals, while growth is more important for long-term goals.
Step 4: Tracking and Review
Setting financial goals is not a one-time activity. It’s important to review your goals every six months. Planning needs to be adjusted when income changes, responsibilities increase, or life events occur.
Case Study: A Typical Indian Beginner
Imagine a 25 year old fellow with a monthly income of 30,000 rupees , with no savings to speak of at the beginning . He started by tracking his expenses , built up an emergency fund , and then dipped his toes into SIPs.
12 months down the line he had savings – and a healthy dose of confidence that he could actually reach his goals . And that my friend , is what a practical change in how you think about your financial goals can bring about.
Financial Goals vs Financial Planning
Financial goals basically tell you what you want to achieve – but not how to go about it . Financial planning on the other hand tells you exactly how you’re going to get what you want . They’re two separate things but they’re not meant to be apart – one does not work without the other.
How Often Should You Be Reviewing Your Financial Goals?
Any major life change calls for a review of your goals. A salary hike, a marriage, or a new responsibility coming your way means a planning update is definitely on the cards.
Conclusion
Financial goals are not some luxury but a necessity. I have learned by experience that rather than waiting for a perfect plan its better to start off with one thats imperfect.
If you start writing down your goals right now then youd already be ahead of most people. Anyone from a beginner can become financially confident with consistency and clarity.
FAQs
Q1. How many financial goals should a beginner have?
Ans: For starters 3 to 5 goals is usually just fine.
Q2. Can I set financial goals with a low income?
Ans: Absolutely. In fact when income is low your goals are even more pressing.
Q3. Should I invest without having a financial goal?
Ans: Investing without a goal in mind just gets you lost.
Q4. What happens if I fail to achieve a financial goal?
Ans: Failing is normal. So review what you did wrong and adjust your strategy accordingly.
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