SMART Financial Goals – Short, Medium and Long Term

What is Financial Goal Setting?

Introduction

In this article, we will help you understand how to set a financial goal. Which are 3 categories of financial goals? Which type of investments would be beneficial with respect to each of these categories? Financial Goals are divided into 3 categories based on the time horizons : Short-Term Goals, Intermediate-Term Goals and Long-Term Goals.

Do You Know What You Want?

• You can’t get what you want, if you don’t know if you don’t know what you want. Therefore, the most important step in the financial planning process is to define your goals properly.
• Defining your goals includes following steps :

1. Writing down your financial goals
2. Attaching the cost to each of the goals and
3. Determining when the money to accomplish these goals will be required in future

• Only when you set goals, analyze them and decide if you’re willing to make the financial commitment necessary to achieve them- can you reach them.

3 Categories of Financial Goals

Financial Goals 3 Time Horizons

1. Short-term Goals
2. Intermediate-term Goals and
3. Long-term Goals

1.Short-term Goals :

• Short-term Goals can be accomplished within 1-3 years period. Paying for the expenses you anticipate in the next few years, requires a cautious plan.
• You should focus on minimizing the risk to your assets and preserving your wealth. Make sure the money you’ll need in the near future, is both secure and accessible.

Common Short-term Goals

1. Buying a car
2. Making a down payment on a home
3. Taking a vacation
4. Getting married
5. Contributions to Family & Friends
6. Establishing your own business
7. Paying off your credit cards, student loans and other debts

• Possible investments for achieving short-term goals: FD’s/ RD’s, Savings Account, Liquid Funds, Short-Term Debt Funds, Short-Term Bonds, Treasury Bills, etc

2.Intermediate-term Goals :

• An intermediate-term goal may take from 3-7 years to accomplish.
• Planning for mid-term goals means carefully balancing investment growth and financial security.

Common mid-term goals:

1. Paying for children’s education
2. Home modifications
3. Buying a second car
4. Traveling to an international destination
5. Regular Income
6. Starting a new venture

• Possible investments for achieving mid-term goals:Medium/ Long-Term Debt Funds, Monthly Income Plans, Equity Oriented Hybrid Funds, ETFs/ Index Funds, Large Cap Funds, Direct Stock buying of big companies.

3.Long-term Goals :

• A long-term goal is one for which it takes more than 7 years, to accumulate the money.
• Realising your hopes and dreams for the future calls for a persistent and growth-oriented investment strategy.

Common long-term goals:

1. Living comfortably during retirement
2. Child Marriage
3. Child’s Higher Education
4. Buying a Second/ Holiday Home
5. Support Parent’s old age expenses

• Possible vehicles/ investments for achieving long-term goals:The diversified portfolio of Large, Mid & Small-Cap Funds, Direct stock buying, Index Funds, PPF, EPF, NPS & other long-term Govt’s Small Savings schemes.

Important Things To Keep in Mind, While Setting Up Your Goals :

1. Be Specific : Rather than aiming to “create wealth” state the purpose of your saving efforts such as buying a car, and determine exactly how much you want to save and by what time.
2. List All Goals : Important is to list as many goals as you can. Missing an important goal, can put a big dent on your financial plan.
3. Be Realistic : Your goals should reflect your financial and life situations. It’s a bit unrealistic to plan for Rs. 50 Lakhs Car on an income of Rs. 20 Lakhs a year.
4. Be SMART : Setting up the financial goals is smart, we can also call them SMART (Specific, Measurable, Adjustable, Realistic & Time Bound) Goals. Once you have your final goals in place, they become the cornerstone of your personal financial plan, serving as a guide to action and a benchmark for assessing the effectiveness of the plan.