Identifying Your Financial Goals
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This document discusses identifying and prioritizing financial goals. It explains that financial goals should be specific, measurable, attainable, realistic and time-bound. Short term goals are those less than 5 years away and include paying off debt and starting to save and invest. Medium term goals are between 5-15 years away and include buying a house or car. Long term goals are more than 15 years away and include funding education or retirement. The document also notes that life events can change one's financial goals.
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Identifying Your Financial Goals
- 1. Identifying Your Financial Goals An Investor Education & Awareness Initiative By Franklin Templeton Mutual Fund
- 2. Goals 1 Goals are something you want to achieve by putting in effort So a goal is an end result that can be observed or measured and is expected to be achieved within a set timeframe Your goals need to be SMART Specific Measurable Attainable Realistic Time bound
- 3. • Your financial goals are your personal goals with financial cost attached to them • You can have various financial goals at various stages of your life • You need to identify each of your financial goals and prioritise them • You need to provide and save for each of your financial goals • You should not confuse financial goals with financial wish Understanding Financial Goals 2
- 4. 3 How to Prioritise Your Financial Goals?
- 5. Maslow’s Hierarchy Of Needs Theory 4 Self Actualisation (Personal Growth and Fulfillment) Esteem Needs (Achievement, Status, Responsibility, Reputation) Belongingness and Love Needs (Family, Affection, Relationships, Work Group, Etc) Safety Needs (Protection, Security, Order, Law, Limits, Stability, Etc.) Biological and Physiological Needs (Basic Life Needs-Air, Food, Drink, Shelter, Warmth, Sex, Sleep, Etc.)
- 6. • Identify your goals • Prioritise your goals • Understand the financial cost associated with each goal • Set a timeline for each goal • Consider how much you can save each month • Finalise your financial goals Process For Setting Your Financial Goals 5
- 7. • Is your goal important • Is it a goal or a wish • Money you need to accomplish your goal • Do you have adequate resources to finance your goals on time • Are you misjudging your timeline Care To Be Taken While Setting Your Financial Goals 6
- 8. • Pay off your credit card debt • Start saving and investing • Buy adequate life and medical insurance cover • Create a contingency fund for emergencies • Provide for expenses towards your marriage • If already married, provide for your child’s admission Short Term Goals (Less than 5 years) 7
- 9. • Buying a house • Buying a car • Foreign Vacation Medium Term Goals (5 to 15 years) 8
- 10. • Providing quality higher education to children • Getting your son / daughter married • Planning for your retirement • Considering health care during your old age Long Term Goals (More than 15 years) 9
- 11. • Marriage • Divorce • Birth of one or more children • Death of a spouse • Disability or illness • Loss of employment • Change in job • Change in location Conditions That May Cause Change In Your Financial Goals 10
- 12. 11 Thank You For Participating!
- 13. 12 Mutual Fund Investments Are Subject To Market Risks, Read All Scheme Related Documents Carefully.
- 14. © 2014 Franklin Templeton Investments. All rights reserved. Franklin Templeton Asset Management (India) Pvt. Ltd. Indiabulls Finance Centre, Tower 2, 12th and 13th floor, Senapati Bapat Marg, Elphinstone (W) Mumbai 400013 Tel (91-22) 6751 9100 Fax (91-22) 6639 1281 http://www.franklintempletonindia.com
Editor's Notes
- INTRODUCTION As you may be aware, life expectancy of individuals has increased; which brings with it rise in medical and living costs during old age. Therefore, it is imperative to make provision for expenses wisely. All of us want to maintain our standard of living during our old age as well, but to do so we need to actually start thinking and planning for our retirement right from the beginning of our career when we are young. This session aims to help you understand how you can identify and establish your financial goals.
- Goals Meaning: Goals are something you want to achieve by putting in effort (…so like in your school days you may have kept a goal of scoring high grades, get into the best college, pursue a bright career … by giving your best) So a goal is an end result that can be observed or measured and is expected to be achieved within a set timeframe (…therefore you need to plan your goals well in advance) Your goals need to be SMART Specific (…Your goal should be as specific and clear as possible) Measurable (…Your goal should be measurable and quantifiable so that you know when you achieve it) Attainable(…Your goal should be attainable based on current facts and situations and not based on assumptions or conditions) Realistic (…You should choose a goal that is realistic, which is not a distant fantasy) Time bound (…You should have a clear time frame in mind to achieve each of your goals planned)
- (…Now that you have understood what we mean by goals, let us now learn about financial goals) Understanding Financial Goals Your financial goals are your personal goals with financial cost attached to them (…and you see they can be related to you, your family and the money you earn) You can have various financial goals at various stages of your life (…It can be during accumulation phase, transition phase or even vesting phase) You need to identify each of your financial goals and prioritise them (…Achieving financial goals may not be an easy task and hence you may not be able achieve all your financial goals together. So you need to understand the significance of each goal and prioritise them appropriately) You need to provide and save for each of your financial goals (…and as each of your financial goals will have a financial cost attached to it, you will have to provide for and commit your savings towards achieving each of these goals from time to time) You should not confuse financial goals with financial wish (…many goals on your list may be financial wishes or mere fantasies. Like winning Rs 1 crore in a game show or buying a premium or luxury car in the next 1 year…)
- (…you have to consider your needs while listing and ensuring the significance of each of your financial goals. And to do this, you should evidently understand your financial needs and obligations. Let’s understand more on this with a simple and popular theory)
- (…Maslow’s Hierarchy of Needs is a popular theory in psychology proposed by Abraham Maslow in 1943, which you may have already heard of and read about in school. This theory describes the stages of movement in human need and motivation. Starting with the basic physiological needs like air, food and water; then safety and protection, moving towards belongingness and love; which once satisfied motivates you towards esteem and then self-actualisation needs like developing personal growth… In a similar way you ought to understand your financial needs and accordingly prioritise them based on your necessities)
- (So what is the…) Process for setting your financial goals: Identify your goals (…based on your standard of living and your family, you need to identify your financial commitments & goals and write down each of them) 2. Prioritise your goals (…once you have listed down your financial goals, you should sequence them in order of importance…from most important to least important) 3. Understand the financial cost associated with each goal (…you can roughly but rationally calculate the financial cost against each of your goals. This will help you understand if your identified goal is within or beyond your reach) 4. Set a timeline for each goal (…you can put a target date against achieving each of your goals. Some may be short term, some medium, some long term. This will accordingly help you plan the money you will need over various time frames in order to achieve each of your goals) 5. Consider how much you can save each month (…you need to determine how much money you can save each month to meet your goals. In case you are falling short of sufficient saving, then you may reconsider the least important goals. You see, it is also important to refrain from unnecessary spending which can enable you to save more and thus achieve or move closer to achieving your financial goals.) 6. Finalise your financial goals (…once you have considered each of your goals and the resources to meet them, you can finalise your financial goals)
- Care to be taken while setting your financial goals Is your goal important (…As we mentioned earlier, you should know how important is the goal which you have set. A less important goal, such as going on a tour to Europe over the next one year or buying a premium watch, should not be a priority, if you have another goal such as a buying a house (to live in) or providing for higher education of your child. Is it a goal or a wish (…You see winning a lottery or Rs 1 crore from a game show can be your wish but not your financial goal. Likewise, you may wish to own a bungalow in a posh location, but you may not be able to attain it unless it is realistic, taking into account your present finances and assessing the scope for improvement in your financial situation) Money you need to accomplish your goal (…you need to consider the future value of your goal. i.e. if one of your long term goals is to send your child abroad after 15 years for higher education which costs Rs 20 Lac at present, you need to account for inflation and accordingly calculate the money you will need after 15 years for this goal) Do you have adequate resources to finance your goals on time (…you need to consider the options and resources you can use to create a corpus to achieve your goals. You need to keep a rational expectation for growth in your income or returns from your investments. You cannot assume 20% appreciation in your salary or income every year, or 30% p.a. returns from your equity investments each year) Are you misjudging your timeline (…once you know your goals, you set a timeline for each goal. But you need to be flexible with your timelines when it comes to a few of your less important or even important goals. Like you can always postpone your foreign vacation by 5 years, or, if needed, your retirement age from 50 years to 55 years)
- (By establishing your financial goals, you can have something to work towards which can help keep you focused when it comes to your money. While financial goals may at times sound similar for different people, it may easily differ when we factor in the time and cost to each goal to be achieved. Based on your age and life stage, you can classify and set your goals as short term, medium term and long term to have a clear picture of what and when you want to achieve. Here we can see few examples of financial goals set for someone who is young and has just started his career) Short Term Goals (Less than 5 years) Pay off your credit card debt (…Very often the younger generation tends to easily get into the credit card debt trap due to excess spending habits, and repaying just the minimum amount due. So if you have mounted credit card debt, repaying the same should be your priority) Start saving and investing (…to achieve your financial goals, you need to form a disciplined saving and investing habit. You should try to save a portion of your income every month and invest regularly to let it grow over time) Buy adequate life and medical insurance cover (…As a priority, you need to secure yourself and your family against financial risk) Create a contingency fund for emergencies (…to take care of any unforeseen event that may arise unexpectedly, you should set aside savings amounting to 6 to 12 months of your expenses) Provide for expenses towards your marriage (…If you are planning to get married, do not forget that you will have to bear additional expenses as well) If already married, provide for your child’s admission (…If you have a child who is yet to go to school, you need to budget for getting admission in a decent school)
- Medium Term Goals (5 to 15 years) Buying a house (…If that’s on your mind and intend to buy one after 5 years, you should set it as a medium term goal) Buying a car (…again, you need to shortlist your options wisely and set it as a medium term goal) Foreign Vacation (…We all want time for leisure travel and vie to see international destinations, but plan for it well by setting it as medium term goal…which could be 5-10 years down the line. But if needed, be flexible and ready to postpone this goal, if any other goal set by you requires priority.)
- Long Term Goals (More than 15 years) Providing quality higher education to children (…with the cost of education increasing day by day; just imagine the education cost after 15 years. Yet you will always want your child to be well educated and thus will have to provide for accordingly) Getting your son / daughter married (…you may be planning a lavish wedding ceremony for your son’s / daughter’s marriage; but be realistic - do not overstretch) Planning for your retirement (…your retirement is the most important goal among all, which you will have to take care of yourself. Planning well in advance may be helpful for you to maintain your standard of living even when you stop earning) Considering health care during your old age (…during old age, you may have a major part of your monthly expense going towards medical expenses. And recognising the rising medication cost, you should make provisions wisely and should not ignore them from the list of financial goals)
- Once you have set your financial goals over various time frames, you need to periodically evaluate your progress towards achieving your goals. There can be conditions that may cause change in your financial goals) Conditions that may cause change in your financial goals Marriage (if you happen to set your financial goals before marriage; you may have to revisit them after your marriage. There might be a few important goals which you may have not considered before) Divorce (An event like divorce can lead to a bigger change in one’s life, personally as well as financially) Birth of one or more children (If you have a new born child, congrats! But you may also have to now include some financial goals and provide for expenses related to your new born child) Death of a spouse (God forbid, but death of a spouse can hinder one’s financial goals) Disability or illness (of self / parents / children / spouse can lead to a significant change in a financial commitment) Loss of employment (of self or spouse can impact your source of income and hence demand a change in your financial goals) Change in job (moving from one job to another may have an impact on your financial commitment and lifestyle as well) Change in location (moving from one location to another can also lead to a change in your lifestyle) (With change in circumstances and needs, you will have to revisit the earlier goals and finalise them again. We are hopeful that this session has given you an insight in identifying and prioritising your financial goals. Remember, it is you who would best understand your needs and decide your financial commitments)