Do you invest in mutual funds? If yes, why do you invest? Like everything else in life, having at least one goal behind your investments will make it easier to stay disciplined and achieve your investment target. Everyone’s life is different, and so the financial goals will also vary. We are here to help if you don’t know about financial goals and what financial goals you can aim for.
What Are Financial Goals?
A financial goal is a target that you can set when you are managing your money. Financial goals may include investing, spending and earning goals.
Having a list of financial goals is the foundation of setting a budget. You can take your goals into account while framing your budget.
It would help if you made sure that your financial goals are SMART, i.e. Specific, Measurable, Attainable, Relevant, and Time-Bound.
Types Of Financial Goals
Different financial goals will have different time horizons. You can reach some goals within one year, and you may require over ten years to achieve another financial goal.
So, based on the different time horizons, you can segregate financial goals into short term financial goals, mid-term financial goals and long-term financial goals.
Short term financial goals
- Short-term financial goals are the goals that you can achieve within one year.
- Saving for a vacation or home renovation and accumulating an emergency fund are short-term financial goals.
- Liquid mutual funds, ultra-short term funds and bank fixed deposits are some options where you can save money for your short term financial goals.
- Mid-term goals are goals with an investment horizon of less than five years.
- Saving for a down payment, getting out of credit card debt, saving for your children’s higher education are some of the mid-term financial goals.
- Short term debt funds and equity-oriented hybrid funds may be ideal investment options to achieve mid-term goals.
- The goals that require over five years to achieve may be called long-term financial goals.
- Buying a house, building a retirement corpus are a few of the long term goals.
- Equity-oriented diversified funds are better suited to achieve long term financial goals.
Examples of Financial Goals
So, we have seen that financial goals may be classified into three types. In this part, we will look into some of the financial goals and their importance.
Building an emergency corpus
Emergencies can happen at any time. You may get fired from your job, your car might break down, or you may need to buy a laptop. We cannot foresee these events, and hence one can’t plan for these situations. Here, an emergency fund or a rainy fund can help us overcome these situations.
An easy way to find out your monthly expense is to subtract your investments from your income. Ideally, one should park three to six months of expenses in an emergency fund. However, please keep in mind that any outstanding EMI, insurance premiums will fall under your expenses.
Getting out of bad debt
Today, credit cards and personal loans have made it easier to buy things. But, if not properly managed, it can create havoc on our finances. It can impact our credit score, which may make future borrowing expensive.
Getting out of the debt trap can be a financial goal for people who have fallen into the trap.
Parent wants their children to have a better education than them. But a good formal education is expensive, and it is only going to get costly in the future. Moreover, you have to spend more on your children’s education if your kids want to pursue their education abroad.
According to the National Center for Education Statistics, a subagency of the U.S. Department of Education, the average cost of attending a four-year college or university in the U.S. rose by 497% between 1985-86 and 2017-18. This increase was more than twice the rate of inflation.
So, if you are a parent or are planning to have kids, saving for your kid’s higher education may be one of your financial goals.
Retirement planning is a significant financial goal that no one can miss. Gone are the days when a steady pension and the large family structure provided financial support to the elderly.
Only 49% have planned for their retirement, according to the PGIM India Mutual Fund Retirement Readiness Survey 2020.
The source of income may dwindle after retirement, and we have to spend money from our savings to go about doing our day-to-day activities. Hence, if we want to have a happy retired life and fulfil our retirement goals, retirement planning becomes mandatory.
In this post, we have discussed some of the financial goals and how we can segregate it into three categories. You may have several financial goals. Hiring a certified financial planner like Prime Wealth is the best way to make sure you achieve your financial goals.