What Are Financial Goals Meaning Types And Benefits

What are Financial Goals - Meaning, Types, and Benefits?

Financial goals are the monetary targets you plan to fulfil your dreams. To meet these objectives, you need to set realistic and clear goals.

Written by : Nitin Bhatia

Reviewed by : Jasmeet Bedi

Jasmeet Bedi

2024-09-06

2089 Views

9 minutes read

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Setting goals are extremely important in life. They give you the energy and motivation to do extraordinary things. Of all the goals, financial goals are strong pillars that keep everyone steady and secure. They help turn dreams into real, achievable results. So, what are the financial goals? A financial goal can change your perspective about life and money. You will start evaluating your everyday decisions in greater detail.

For example, you may not find anything unusual in spending ₹25 on the cheapest, regular coffee in the neighbourhood coffee shop. If you are habituated to having such coffee four times a week, you end up spending ₹100 each week.

On the face of it, this amount may look small. But if you invest that ₹100 each week (or ₹400 each month) even in a simple debt instrument (ROI 6% p.a.), your coffee money can grow to ₹28,000 in 5 years and nearly ₹4 Lakhs in 30 years. This goal can now help you decide each time you get tempted to hang around in that coffee shop. Now, imagine if you save ₹4000 instead of ₹400 per month.

Recommended Reading - How to Manage Money?

In this blog, we will delve into the details of what are financial goals and their types.

Table Of Content:

What are Financial Goals? 

A financial goal is a scientifically defined financial milestone that you plan to achieve or reach. Financial goals comprise earning, saving, investing, and spending in proportions that match your short-term, medium-term, or long-term plans. Every financial goal will have the following three details associated with it:

  • What is the purpose?

  • How much money is needed?

  • How much time? (usually in years)

Financial goals include emergency funds, retirement corpus, home purchase, car ownership, debt clearance, etc.

Types of Financial Goals 

Now that you have gained an understanding of financial goals meaning, let’s move forward to understand their types. Although you can have a wide variety of goals, you can broadly classify each of these goals within a specific time frame so that your priorities become clear. 

Categorising as per time frame helps you visualise the goals and pace yourself accordingly. To ensure your life is planned and on track, you must focus on setting clear timelines when framing the goals. This will make you more productive and effective. Here are three types of financial goals:

Short-Term Goals 

Short-term goals refer to those goals that you want to achieve in the foreseeable future over the next few months. These are required to meet your immediate expenses. These expenses are generally smaller in scope and easier to project and predict.

Medium-Term Goals

Medium term lies between short and long term. Short-term goals have a typical timeline of a year whereas long-term goals are planned for a decade or more. You may have to achieve a series of short-term goals to reach your medium-term goals. Clearing outstanding dues on your credit card or personal loan can be classified under medium-term goals.

Medium-term goals are critical for evaluating your progress against your long-term goals. You can check whether you are headed in the right direction.

Long-Term Goals

Long-term goals require more deliberation and, in most cases, money. Retirement, buying a house, and funding a child’s higher education are typical long-term goals.

Examples of Financial Goals

Life becomes easier if you know all your goals and work towards achieving them. Financial goals are better in this aspect as you can simply put your money to work and achieve them. Here are some of the common goals:

Emergency Fund 

Emergencies do not come with a warning notice. Various issues like damage to house or equipment, illness, accidents, etc., can strike anytime and require immediate cash. In this situation, keeping all money in the form of illiquid assets such as land, bonds, etc., will not be a viable solution. Setting aside some money in savings accounts FDs that can be withdrawn quickly can be useful in building your emergency kitty.

Retirement 

Retirement planning should begin as soon as you start earning. If you have a longer runway, you can save smaller monthly amounts, yet reach your targeted retirement kitty. When you have a particular amount (calculated rationally using projected expenses, income, etc), as a goal, you will get into the groove of saving for it in a disciplined and sustainable manner.

Buying a House

If you aspire to own a house, you must have a clear vision of the projected cost. A clear milestone can help you work backwards. For example, if you want to buy a 3BHK flat when you turn 35, estimate the cost and start saving for it. Even if you plan to avail a home loan, you will have to make some down payment and bear incidental expenses.

Even in the best-case scenario, presuming the financer covers 90%-100% of the expenses, you will have to plan to set aside money each month for EMIs. This implies you should not pick up other debts now or clear outstanding debts before you get there.

Child’s Higher Education 

Quality education comes at a cost, and this cost is increasing day by day due to inflation and rising demand. Having a goal to reach a specific amount by the time your child turns 15 or 18 will help you build discipline in your savings.

Vacation 

No, you don’t have to sacrifice your breaks and vacations. If you feel energised, rejuvenated and refreshed after a break, go for it. Even the old adage supports this- ‘All work and no play makes Jack/Jill a dull boy/girl!’ What is important is to plan this well in advance instead of making it an impulsive decision.

Upgrade/Buy a New Car

Upgrading or replacing your car will be a lot easier if you plan it ahead. This is relatively easy because you know when you purchase your car. Even if you retain the car for the legally permissible tenure of 15 years, you know well in advance about the time to upgrade or replace your car.

If you currently ride a bike but plan to buy a car when you get married or have a child, say in 3 years, plan accordingly.

Buying things on loan is quicker but almost always more expensive. For example, paying ₹12.4 lakhs for a car with an on-road price of ₹10 lakhs. The bigger and longer the loan, the higher your cost. However, look at replacing the unplanned loan with a planned purchase, and you can make more money or even buy a better car (or any other asset).

How to Prioritise Your Financial Goals for Investment? 

Make a list of your NEEDS Vs WANTS. Needs are essential, whereas wants are good to have. You cannot compromise much on needs because those may be essential for survival and well-being. Even within Needs, list out expensive items separately. You can classify both expensive and inexpensive items under different timelines so that you can pace your investments accordingly.

urgent-important-matrix

Ranking each item within the urgent-important matrix will give you further clarity on where your money should flow. Once this matrix is ready, look at your budget and start saving for the priority items in each bucket.

Did You Know?

80% of Indian consumers feel that professional financial planning has greatly improved their quality of life.

- Zeebiz

Claim Settlement Ratio

Financial Goals Help Investment Success 

When you have defined financial goals meaning, and types of financial goals, selecting appropriate investments becomes easy. For example, child education goals are best fulfilled with a child insurance plan. Then, you can choose based on your risk appetite:

  • Guaranteed Savings Plan, if you want a fixed rate of return on your investments

  • Child ULIP Plan: If you can tolerate a little market variation or whether you are aggressive enough for equity exposure. 

Similarly, retirement plans will be an easy choice for a defined goal. Retirement goals are often defined as a % of the income you will save. So, for example, if your annual income is ₹10 lakhs, and your retirement need is 15% of your income, you can allocate a total of ₹12,500 per month into:

  • National Pension Scheme or Public Provident Fund

Planning and knowing your investment goals gives you an edge with investments. Proper and disciplined investments are the path to a prosperous future.

Also learn about - What is an SIP Investment?

Final Thoughts

Setting goals and achieving them one after the other by saving the money can help in improving your financial health. Whether, you plan to save to meet for short, medium, or long term goal, a disciplined saving habit is all that you need to. If you plan to save in the best investment plan that can fetch better results in the future, consider Canara HSBC Life insurance options. The customisable plans are specially designed to offer you flexibility and convenience to meet your financial goals with confidence and ease.

Glossary:

  • Retirement corpus: The sum of money accumulated over one's working years to fund expenses during retirement.

  • Debt Clearance: Paying off all outstanding debts to become debt-free. 

  • FDs: Fixed Deposits are financial instruments in which a fixed sum is deposited with a bank for a predetermined time period at a fixed interest rate.

  • Bonds: These are fixed-income securities where an investor lends money to either the government or corporation for a defined period at a fixed interest rate.

  • National Pension Scheme: NPS is a government-sponsored retirement savings scheme designed to provide pension benefits to individuals upon retirement

glossary-img
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FAQs Related to Financial Goals

Some examples of financial goals include paying off debt, buying a house or car, saving for retirement, building emergency funds, starting a new business, etc.

The four main financial goals are:

  • Wealth accumulation

  • Debt reduction

  • Risk management 

  • Retirement planning

You can set SMART financial goals by making your goals:

  • Specific

  • Measurable

  • Achievable

  • Relevant

  • Time-bound

For better clarity and tracking process, it is advisable to break your financial goals into smaller milestones.

 

To plan your finances effectively, set clear and achievable goals like saving for a house or retirement. Create a detailed budget to track income and expenses, identifying areas to cut back and save more. Establish a regular saving habit. Invest wisely by diversifying your portfolio and seeking professional advice when needed. Finally, regularly review your financial plan to adapt to changes in your life or the economy, ensuring you stay on track to meet your goals.

The golden rule of personal finance emphasises on spending less than you earn, avoiding lousy debt, investing consistently, setting clear goals, and exercising patience for long-term financial success.