Sunday, September 23, 2012

Setting up Financial goals are important ?

Financial goals are nothing but the future expenses which are apart from the regular expenses and come in lump sum in addition to your regular expenses. We have to prepare for this because our regular income may not have the capacity to accommodate them.
There are majorly three types of expenses in life.

 Liabilities:    eg household expenses, life style expenses, EMI’s of existing loans  Dependents expenses. Etc.
    Responsibilities :  eg. Children’s higher education , marriage ( now a days it is optional J ), Your retirement , Creation of medical fund after retirement day to day medical expenses which may not be covered by Mediclaim.
    Aspirations :  eg. Buying a car, international tours, Domestic tours, buying a real estate property other than residential house, cars, wealth creation etc.

Out of above expenses 2 and 3 are considered as financial goals.
There is one more classification of the goals which can be done on the basis of the duration of the goal viz.

1.Immediate goals : these are the goals which are in need of financial support within a year’s time  means in same financial planning year this may be any kind of goal , every goal acquires this status when it comes to maturity or implementation.

 2. Short term goals : these are the goals which are having horizon of 1 to 3 years.

3. midterm goals : Goals having a time horizon between >3 years to <7 years.

4.Long term goals : These are the goals which are having a time horizon more than 7 years.


How to setup a financial goal ? :

This is one of the important question everybody asks specially when it comes to child education funding plan. “ The problem is my child is too small and I don’t know what type of education he will go for then how I can plan for and I don’t want to force him like what “Virus” had done in “3idiots”.
This is a normal answer.However financial goal for child’s higher  doesn't mean any specific education it is about the funds which we have to made available. Having a money is not a problem if you plan for say Rs.1500000/- for higher education and because of some means your child doesn't used it then this will help you to achieve your future goals more faster. But you child requires Rs. 1500000/- and you have prepared for 500000/- will create big problem.
 “ How I can predict the expenses at that time as I don’t know what would be the situation then “ this is where financial planner will help you , you have to plan for all your future expenses in today’s term and financial planner will grow it at appropriate growth rate to reach the funds as on then.
For eg. If you are planning to fund Rs.500000/- in today’s term for higher education of your child who is of 2 years old  , considering say 11% growth in expenses you will be requiring Approx.Rs.2656000/- at your child’s age 18.
In a same way you have to think about your each financial goal this will give you the picture of the expense in future.

Prioritizing the financial goals :

Once the goals are set you have to prioritize the goals on the basis of the importance of such a goal in your life. Prioritizing will help you to understand your needs and your wants, this may help you to understand you better.
It also helps in channelizing the resources towards the goals on the basis of its priority.

Why setting up financial goals are important

We may be in any type of work , may be a salaried , or Businessman , or a professional we have some goals to achieve, these goals gives us a fuel to work and plan and execute.
In the same way we have to plan our life as well achievements for life, it is all about how you would like to see your life to be financially.
It helps in optimization of the resources what we have as well as help in defining a clear-cut strategy for the financial decisions, gives a more structured and articulated approach to our financial management .
The duration of the goal also help us in setting up a proper strategy for investment.

Advantages of setting up financial goals :

   1. Gives clarity about the expenses in future.
   2. We get to know the time duration available for the specific
   financial goal.
   3.We can plan the strategy to achieve these goals.
   4.We can analyze where these goals are affordable or not and
       rework the financial goals if needed.
   5.It increases the success rate of achieving financial goals which
  ultimately gives you satisfaction.
   6.The money can be made available in the right amount at the right
      time.


Happy Financial Planning !!!

About the author : Ashish Ramesh Bhave is a CERTIFIED FINANCIAL PLANNER, focused and specialized in financial planing for individuals and families. Can be reached at arbfinancials@gmail.com or Cell : 08793107044

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