Smart planner's guide to getting a fix on finances
Written on Saturday, July 2, 2016
By Mr. Vishwajeet Parashar
When the objective of people's aspiration is achieved financially, it is termed as afinancial goal and to realize it, one is required to time and forecast one’s goals, i.e., the time by which you would like to accomplish your goal.
No goals are big & small since each one has its own purpose and ultimately each goal should contribute towards the betterment of your life both in terms of facilities and a sound level of mental satisfaction.
Even before you finalize the goal
When you start thinking about your financial goals, certain questions come to mind such as
1. Which goals do I need to achieve first in my life?
2. Which goals are in line with the bigger picture of life I have drawn for myself? How should I differentiate between the goals in view of my current situation, future needs and wants?
3. Which goal will give me strength & power after achieving it?
4. 10 years down the line, what basic needs should I be accomplishing? etc.
Questions like these and more many will come into your mind, but before you choose to dedicate yourself to your objectives, it is important to review your list of goals with as much correct information as you can. It is only after answering these questions, that you will notice a streamline pattern of your goals. A prioritized list of goals that is in sync with your needs and in line with the bigger plan of life.
How to Prioritize your Financial Goals
There are many ways to prioritize your goal. It is always advisable to take an overview of various things which are necessary for you. It is true that 'life, like the money invested, should get a return of satisfaction & a growth in your standard of living.
Give a glance on retirement planning
Many people believe that the provident fund, superannuation and gratuity corpus they will receive on retirement will be adequate to ensure a comfortable life during the retirement years. Most of the times, it turns out to be inadequate because you have never given serious thought to inflation and other economic factors. Therefore, a retirement plan should be part of every one’s list of goals. The main objective should be to ensure that your savings are enough during the earning years so that you can easily maintain a comfortable retired life between the time of retirement till life expectancy.
Understand the difference in consumption and investment expenditure
Many of us have an endless list of lifestyle expenses. However, you should be prudent with your expenses and always understand the difference between your consumption expenditure & investment expenditure.
This can be done by highlighting how the expenditure might affect the chances of the family being able to fulfill some other financial goals and the trade-offs should be clearly understood. Some outflows, like providing education to children, may appear to be consumption expenditure while actually they turn out to be useful investments if the children are capable and contribute to the family income and stature. Such Expenses should be carefully prioritized.
Prepare a budget
At times, Most of us do not realize how much money goes in various avoidable expenses. In order to know these expenses, we should note down all expenses above a certain amount. Let’s say the limit is Rs 1000 or it can be Rs 5,000, depending upon individual level of income. A summation list of expenses at the end of the month can be enlightening to say the least. For example, the total amount spent on eating out or entertainment, when calculated at the end of the month, can make a significant difference to your next month’s budget as well as your lifestyle.
Asset Allocation to various categories of goals
Asset allocation into equity, debt, liquid funds, etc. should be strategically accomplished while considering the need & requirement to achieve that particular goal. The monthly summary of outflows also helps in understanding the current order of priorities. If unusual expenses are kept out (for instance, a hospitalization that was not covered by insurance), the balance outflows can be categorized as retirement savings, loan servicing, essentials and lifestyle expenses etc which may vary from person to person and family to family. Maintenance of asset should be done tactfully and in accordance with the market conditions so as to meet the true value of your goal by the time you want that goal to be achieved.
Lurching time of goals
Some financial goals need to be fulfilled within a specified time frame. For instance, education of the child has to happen within a particular period and progression. The child’s higher education should not be postponed because money is not available at the right time. Other financial goals may have to be deferred to ensure that the critical financial goal is not compromised. For instance, around the time that the family proposes to buy a house, buy a car or an annual holiday may need to be reviewed to make up for the one that is higher on the list of priorities. It is important to remember that too many financial goals around the same time may prove to be more challenging.
Give a glance on gold mines
Sometimes you may earn a jackpot, earn an unexpectedly high annual bonus or win a lottery, etc. A healthy portion of such unexpected income should be set apart for the future, since the family is used to living without that too. These are also situations to take a look at the outstanding loans and consider pre-paying some of them. Various other needs can be fulfilled through this unexpected inflow of money, but that should be done tactfully.