financial Goal setting

In the earlier article we had just seen an overview on Financial Planning; now let’s go a little deeper.

What was the first step we had to do? Find out your financial situation. You would know exactly how much money you have and how much you owe. In short you would know your net asset value.

The next step was goal setting. I had mentioned that it should be specific and measurable in terms of money. What did I mean by specific? The goal should be clear like I would like to have a car, home or would like to plan for retirement. Now if the goals are specific, they can be measured. i.e. it would be possible to tell which car you want, how big a house you would like to have or how much money you would like to have in case you retire.

Once this step is done, we need to see how much time we have to reach this goal. We need to say I would like to have a car in 2 years, a home in 5 years and retire at the age of 40. Be realistic. Don’t say you want it today, since if that was true, you would not have been sitting here making a plan. You would have already purchased the car, house or retired.

When you put a time frame it gives us an idea as to how much time I have to meet my target.

Once we have these factors in place, we need to check what are the investment avenues you have to achieve the goals? Or how do we go about earning that money.

What is investment? Investment is a method of using your savings to earn an income. Now investing is not the same as saving. When we keep our money aside in a safe place without spending means saving. When we buy something or lend out money in the hope of receiving a higher amount after a certain period of time, its called investing.

Taking your money and putting it into fixed deposit is saving. But putting the same into Equity mutual funds is investing. Now some might say I can do that by buying and selling shares on the stock exchange. Yes you can, but that is not investing its trading. If you buy a particular share and only sell when you would require it, is investing.

Remember we have to invest or earn in such a way that we should not lose our capital.

If we do not do the above exercise we do not give ourselves a chance. Give yourself a chance. Go ahead and plan, at least you would be happy that you tried and you would get a better idea as to your chances.