How to Prioritize Your Financial Goals?
Prioritising i.e. streamlining of the financial goals is very important step in financial planning. One should know the need of goals in order of its urgency and achievement. Prioritising one’s financial goals has 6 simple steps, which we are going to discuss in detail in this article. These 6 steps to prfioritize the financial goals are as follows:
- List down your Needs First
- Save for Emergencies
- Focus on Retirement
- Get the Right Insurance
- Pay-off High Interest Debt
- Set Money Aside for Long-term and Short-term goals
- When we write exhaustive list of our Financial Goals, we can be overwhelmed easily by everything our income is ‘supposed to’ accomplish for us.
- You may see that your income should go towards saving for retirement, paying off your debt, saving an emergency fund, savings for children education, saving for home, saving for your short-term goals and also feeding, clothing, and housing you too..!!!
- It can seem impossible to make any financial progress, when faced with all these demands. Instead of trying to do everything at once, prioritize the various financial goals, you might set.
- And this prioritization should be based on both the math behind them and your personal disposition toward saving, investments and debts.
6 Steps For Prioritizing Your Financial Goals
Step 1 : List down your Needs First
Differentiating between Needs and Wants is the first step in Prioritizing Your Financial Goals. This exercise will force you to think seriously, about your unnecessary expenses also.
We will try to give you few examples of your NEEDS:
- Retirement Planning
- Medical Insurance or Medical Fund
- Child/ Children Graduation
- Daughter’s Marriage
- First Home
Now, we will discuss about few wants which have become needs of today:
- Mobiles and Internet
Step 2 : Save For Emergemcies
- First goal that you should always be creating is an emergency fund. Many a times things don’t happen according to your plans. In such situation then, it make sense to have an emergency fund or a contingency plan in order to deal with the unexpected outcomes.
- A contingency plan is often used to manage risk that may seem unlikely to happen. But if it happens it would have a disruptive impact on your life. For more details regarding contingency plan, Refer : https://finplanyadnya.in/
- For Example, Sudden job loss or medical emergencies or other natural disasters. Thus in such serious financial events, your emergency fund can be used.
Step 3 : Focus On Retirement
- Retirement is the most important goal for any person, who has not retired yet. First, you should work on saving towards retirement.
- However, unlike the developed world, India does not have any social security structure. That is why an individual must not depend on anyone but themselves to fund their retirement.
- Many of us consider other goals such as child education as their top financial goal, even at the cost of retirement. You must understand however that, there are multiple ways to fund a child’s education which include loans, grants, etc. But ask yourself: will any financial institution give you a loan for funding your retirement?
Step 4 : Get the Right Insurance
- Small financial emergencies can set you back, but big ones can seriously cripple you. If you have kids or other people who depend on you, life insurance offers essential protection. Even if you don’t have any dependents, you may still want to consider an affordable term life insurance policy.
- Term insurance is worth having because it’s relatively inexpensive and protects your family from suffering financial problems.
- You can also look into policies for both short-term and long-term disability insurance. This is wise way to ensure that you and your family can still receive an income while you’re recovering from an accident or debilitating illness.
Step 5 : Pay off High Interest Debt
- Before you become focused on saving money, you should get out of bad debt.
- Becuase the interest rates on credit cards, and many other loans are higher than returns on typical investment vehicles.
- Credit card debt can be a huge drag on both your ability to access current cash flow and your chances of achieving your long-term financial goals. Thus, paying off your credit card debt could save you quite a bit of money, especially when factoring in interest. It will be an instant help to your cash flow, likely higher than any return you’ll find via other investments.
- Good Debt such as Home Loan can be kept for long and need not be repaid.
Step 6 : Set Money Aside for Long-term and Short-term goals
- After you’ve paid off high-interest debt, then you should begin saving for other goals.
- Prioritisation of these goals should be based on your requirements. You should always prioritise Need first and then go for Wants.
- Ideally Child Education goal comes after Retirement goal in terms of priority. But, if you do not have a house yet, you may have higher priority for Home Goal. So you can start setting aside cash for achieving short-term financial goals like buying a home.
- Getting a handle on your debt before making such purchases will improve your cash flow and allow you to put more money toward a down payment (reducing your debt later on).