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Goals And Priorities

In your everyday life, things that are important and demand immediate attention get priority over others. Likewise, your financial goals too need prioritisation.

A financial goal can be classified as short term or medium term or long term, according to the time period within which you need to achieve it. Goals that you want to achieve within a year are short-term, those that you want to accomplish within five years can be called medium-term or intermediate, and the ones that you plan to achieve in more than five years are long-term.

Make sure that you allot your goals a target date while putting them down on paper. That’s because you would need these dates for calculating the goal’s estimated cost in the future.

Before you start out, ensure that the goals are realistic and attainable, or else the entire exercise could be futile and frustrating. For instance, a Rolls Royce worth several crore of rupees may be your object of desire, but at a salary of `6 lakh per annum, it may not be a feasible idea.

PRIORITISING GOALS

After writing down your goals, you should prioritise them. By nature, all of us have an endless wish-list. However, given our limited resources, it is difficult to provide equally for all our financial goals. Prioritising helps you allocate existing resources and channelise future investments towards a more important goal. While proper planning may fulfil all your financial goals, prioritising helps you focus on the more important financial goals at that point in time. For example, saving for retirement is definitely more important than buying a luxury car or going on an overseas vacation. Or, for instance, you might like to acquire a house in the next three years. This could mean an expense of around 10 lakh as down payment.

Being a highpriority goal that’s also nearby, your investments should ideally be focused more on it than, say, on retirement.

THE BASIS OF PRIORITIZATION

But, how do you prioritise you goals? In order to do so, it is important to understand the difference between your ‘needs’ and ‘wants’- it is crucial to determine which goals are important and which ones can wait. Needs - such as food, clothing and shelter - are things you must have for a healthy existence. Wants are things you would like to have, but do not necessarily need. In the context of financial planning, you must differentiate between your needs and wants. That’s because at the various stages of planning, your wants are bound to clash with your needs. In situations where your surplus is not sufficient, you will have to curb discretionary expenses, that is, expenses you can defer, reduce or eliminate.

Therefore, the basis of prioritising hinges primarily on the criticality of the target goal and also the nearness of that event. So, for someone with small kids, children’s needs and retirement may be equally important.

In such a case, both the goals have to be adequately taken care of. However, for someone with teenage kids, children’s education or marriage attains importance over, say, retirement.

Also, children’s needs are met largely around a standard age and, hence, targeting them initially is imperative.

Things such as a foreign vacation or buying a second home could be postponed to a later date.

REVIEW YOUR PROGRESS AND RESET YOUR GOALS

Setting goals is not a one-time exercise. Your financial realities change with time. For instance, after your marriage, the birth of a child, a child’s marriage, or after events such as greater income from a job change, you should reset your goals. Therefore, it is important to review your financial goals periodically, preferably every year. The review process will also help you monitor your progress towards your financial objectives. If you find the progress inadequate, you could make suitable changes to the various elements of your financial plan, such as your savings, investments or your tax outgo.

Clearly, setting up financial goals and working to achieve them are not the theoretical exercises they may seem at first sight. They are grounded in the reality of your financial income and expenditure. It is only by monitoring your progress towards each milestone that you can track the efficacy of your financial planning process.

BASIC KNOW HOW

A financial goal can be classified as short-, medium- or long-term, according to the time period within which you need to achieve it. Prioritising helps you allocate existing resources and channelise future investments towards a more important goal. Understand the difference between your 'needs' and 'wants' - it is crucial to determining which goals are important and which ones can wait. The basis of prioritising hinges primarily on the criticality of the target goal and also the nearness of that event. Review your financial goals periodically, preferably every year or two.

Next To Come: Investment Options