Goal-setting starts with identifying various short to long-term goals. While saving for an expense such as annual vacation or buying furniture in the next 12 months may be a short-term goal, saving for home loan down payment over the next 3-5 years may be one's medium-term goal.

1. Nasim Siddiqi - How goal-setting helps plan your finances
It is always better and easier to plan one's journey after choosing the destination. For, a
planned itinerary certainly helps in making an efficient and optimum use of the available
resources. Similarly, life goals need to be identified upfront before one starts saving towards
them. Set your goals in sight and create a separate plan to achieve each one of them.
Remember, goal-setting is only a part of the overall financial planning process which entails
meeting life goals through the proper management of finances.
Goal-setting
Goal-setting starts with identifying various short to long-term goals. While saving for an
expense such as annual vacation or buying furniture in the next 12 months may be a short-
term goal, saving for home loan down payment over the next 3-5 years may be one's
medium-term goal. Long-term goals may include child education, marriage needs or funding
one's own retirement.
The identified goals need to be well-defined by assigning them some value as well as setting
a time horizon to achieve them. There should be clarity about the goals that your wish to
achieve. It also helps in proper linking of the goal to an investment. An attempt to meet a
medium-term goal by linking it to a long-term product may not yield the desired result.

2. Benefits
If one plans and sets the goals in advance, managing and controlling one's finance is easier.
Any short-term temptation to divert funds towards immediate and discretionary needs gets
curbed. Impulsive buying may also take a back seat. Setting goals in advance helps in proper
utilization of available resources, i.e. investable surplus. It gives you the reason to follow the
approach of 'Income minus saving equals to expenses' rather than 'Income minus expenses
rather than 'Income minus expenses equal to saving.'
Life insurance goals
Once the goals are identified, the role of risk management tools such as life insurance gains
importance. The goals that you wish to achieve through life insurance by linking them to it is
an important financial decision. Life insurance (savings-oriented), for example, is a long-
term savings product. Hence, the goal one wants to achieve through it also needs to be long
term. The importance of goal-setting, therefore, is an important step before one starts to
save through life insurance.
Life insurance helps in mitigating the risk of not meeting long-term goals such as children
needs. If, for example, one starts to save for children needs through life insurance, the
commitment to divert savings towards the goal continues till it is achieved. In case of an
untimely death of the parent, life insurance plays its part and secures financial requirement
of the child. So, if your goal is to save a specific amount to be used by your child when
he/she attains a certain age, a child-oriented life insurance plan may be a better alternative
to achieve it even in the absence of the parent. Goal-setting thereby helps in safeguarding
you and your family against any financial crisis in the event of death or disability when your
financial dependants need your financial support the most.
Process
A comprehensive goal-setting process would start by establishing the current financial state
of the individual by gathering relevant financial information. This helps in putting realistic
goals and values in place. Thereafter, identifying and estimating the requirement after
adjusting for inflation takes place. A post-graduate course costing Rs 9 lakh today may cost
more than double in 15 years! Lastly, one has to come up with a strategy or plan for
meeting the goals under the current situation while keeping the future goals in mind. The
choice of the asset-class or the investment product comes last in the process. For better
results, one may take the assistance of a financial planner while undergoing this exercise.

3. Challenges
The process of goal-setting may have its own share of challenges with procrastination being
one of the biggest challenges. For instance, there could be a change in the financial position
or life situations may also change. Delay in the goal-setting process could cost you heavily as
you would lose on the benefit from the power of compounding. There is a possibility of over
or under-saving as well with resources not being utilized optimally. It is therefore better to
be prepared to face the uncertain future well in advance.
The other challenge could be to sacrifice today for a better tomorrow. For example, a small
amount of savings can create a sizeable amount of wealth over time. But unless the goals
are well-defined, investing might not be of much help. A few common mistakes during the
exercise could be setting unrealistic goals or looking for quick-fix financial solutions instead
of a long-term strategy. Also, at times, one may start expecting unrealistic returns on
investments while ignoring the basics of each asset-class.
Conclusion
Setting of goals marks the beginning of financial planning to help you achieve the objectives
at various life stages. Goal-setting gives meaning and direction to the various financial
decisions you will take during your lifetime. A common misconception among most
investors is to consider financial planning similar to investment planning, which in reality is
only a part of the former.