Importance of goal setting in financial planning

Setting meaningful, well-defined goals is one of the most important aspects of financial planning to achieve financial freedom. Financial goals, quite simply, are objectives driven by future financial needs we wish to achieve in the desired timeframe.

One of the biggest problems in financial planning is that even though, most of us are aware of the importance of goal setting, still, we spend a considerable amount of time focussing on our financial situation and spend little or no time on setting future goals. However, goal setting is a very integral part of our investment journey and must be performed diligently.

Goal setting is important for many reasons:

Goals allow creating a realistic plan

If you have a well-defined goal then it allows you to create a plan which is realistic in nature. Your financial goals can be anything like wanting to pay-off debt, saving up for children’s education, retirement etc. Once you have your goals in place, you will plan and save accordingly to achieve it. For example, you wish to accumulate a corpus of Rs.1 crore before retirement then you exactly know how much you have to save and for how long in order to achieve this goal.

Goals give direction to investments

Goals give direction to your investments. Clearly defined goals provide a purpose to your investments and help you stay focussed and curb unnecessary expenditure so as to achieve those goals in the long-term.

Goals help prioritise

Like all situations in life, financially too, we are pulled in many directions. There is a lot we wish to achieve but at the same time we have, we cannot do it all at the same time. However, creating financial goals helps us prioritise us for the short and long-term.

Goals help stay disciplined

One of the most important things in investments is that you should be disciplined about it. When you are investing for a specific goal and monitor your progress then it acts as an incentive and helps you to stay disciplined..

Goals help create accountability

When you establish specific financial goals, you can focus better and hold yourself accountable. Clearly defined goals to be achieved in future help create accountability. Whenever you write down a specific goal and work towards it you continuously monitor your progress and are honest about it. You get into the habit of reviewing your progress and are honest about it which helps you stay on the right path.

Goals give a sense of achievement and help celebrate your accomplishment

All of us like to get rewarded for our efforts. Creating financial goals and achieving them are the rewards of your goal based investments. These significant milestones provide you with a sense of achievement.

How to set goals for yourself?

Setting goals for your future planning is not a difficult process and can be done by keeping these few important things in mind:

Pen down your goals

Once you have written down your financial goals, you can prioritise them in order of importance. If you are one of those who love making list to do things and then striking them off, achieving financial goals and crossing them off will be very satisfying.

Your goals should be S.M.A.R.T.

Specific- Each goal should be specific and clearly defined

Measurable- Set measurable financial goals so as to know when you have reached it

Achievable- Your financial goal should be practical and well within your financial reach

Relevant- It should be relevant to you

Time-bound- Each goal should be time bound so that you can monitor your progress and achieve it within the desired time frame

Make a plan of action

After defining your goals make a list of things which you need to do in order to achieve these goals.

Review your goals

Once you have set your goals and are working towards it, it is equally important that you are continuously reviewing them from time to time. This will help you to stay on track.

CONCLUSION

For any life journey that you commence, it is important to have an end goal in order to finish your journey. Similarly, in the process of financial planning, you need to have well-defined future goals to commence your investment journey.