Financial Goals and Budgeting
Financial goals are targets to achieve specific financial objectives within a specified timeframe. By establishing clear financial goals, one can take control of finances and work towards securing financial future.
Setting Financial Goals
A good financial goal should be SMART i.e. Specific, Measurable, Achievable, Realistic and Time bound.
| Description | Incorrect Approach | Right Approach | |
|---|---|---|---|
| Specific | You need to know exactly what you want to achieve and when you want it. | I need to set aside money for my grand daughter’s birthday next year. | I need to set aside Rs. 1,000/- for next ten months for the celebration next year. |
| Measurable | A goal should be measurable so that you know when you will achieve it. | I will pay off most of my credit card dues soon. | In the next six months, I will pay off all my credit card bills in disciplined manner. |
| Achievable | Your goal should be within a reasonable reach. | I will save money. | I will save Rs. 48,000/- every year by setting aside Rs. 4000/- every month. |
| Realistic | Your goals need to be based on available resources which you can achieve reasonably. | By saving regularly, I will become a millionaire. | By saving regularly, I will be debt free by January next year. If I continue saving regularly after clearing all my debt, by next December I will be saving the sufficient amount to fund six months of my living expenses. |
| Time-Bond | Goals with timelines allow you to track your progress and encourage you to keep going until you reach your goal. | I will save money for my daughter’s marriage. | I will save Rs. 50,000/- every year for next 10 years for my daughter’s marriage. |
Budgeting:
Budgeting is the process of creating a plan for how you will spend your money.
Budgeting helps you to gain a clear understanding of your financial situation by documenting all sources of income and expenses, control spending, saving money, paying off debt and work towards your financial goals.