Let me help you in setting your financial goals…

In last two blog posting, you found your net worth and net cash flow. Net worth lets you know about financial position and net cash flow lets you know about your ability to save. From net worth, you can deduce if you have achieved enough financially and net cash flow will size you up for your ability to reach your financial goals if need be. If you are reading this blog, then i assume that you need help in financial matters.

In this posting, we would look into topic of setting your financial goals.

Primary goal of personal finance is to be able to take care of expected and unexpected financial contingencies in your future.

What are the financial goals that you need to take care of? Some of them are pretty obvious and are expected while there would be some others which you need to think through.

For a young person in his twenties and just beginning his career, goals would be as follows.

Expected ones

• Self marriage expense
• Primary home expense
• Education expense plan for kids
• Marriage expense for kids
• Retirement plan expense

Others

• Secondary home expense
• Vehicle loan expense
• Expense for starting a business
• Expense for home improvement

You might be able to come up with few more of your own.

Following are the factors that would impact your financial goal expense plan.

1. Your expected retirement age.
2. Your expected income growth rate.
3. Expected taxation rate.
4. Expected investment rates which you hope to achieve.
5. Expected rate of inflation that would diminish value of your money.

List out the financial goal sheet as follows. Against each goal, designate a number from 1-5 , 1 being set for most important goal and also set the timeframe when the goal has to be achieved. For example, your kids education expense for college might be 10 years from now and since it is important, you rate it at number 1. Make an exhaustive chart so that you can visualize the timeframe vs expense due data. This would make your life easier from planning perspective.

Categorize each goal into three buckets of short term, medium term and long term. Short term would be anything that falls in next 5 years, medium would be between 5-10 years and anything beyond that would be long term ones. You may vary the terms depending on your requirements.

Next, for each bucket, determine the steps or action items you would take to meet the goal. To name a few…

• Deferring expense for activity which are not of high priority.
• Plan for curtailing expenses
• Specific investment plan for each goal
• Reducing the recurring expenses

A tip: If you feel that you are not capable enough to complete this, then you may seek help of a financial planner.