Financial Goal Planning:

The reason for most of our financial worries and stress is poor or no financial planning. To understand what financial planning is and how to do it, Let's do one exercise. If you are married then do it with your partner.

(1) Listing specific goals: 

List down all the things (Max 20) that you want to do in your life and require money. These are your financial goals.

For example -

• Buying a house (down payment, loan completion)
• School Education of kids,
• College Education of kids,
• Buying Car,
• Retirement,
• Kid's Marriage expense,
• Vacation in your home country,
• Vacation in a foreign country.

(2) Effective Goals Setting: 

For each financial goal right down below things -

(A) How much money will be required to achieve it?
(B) After how many yrs you want to achieve it.
(C) Give priority to each goal (1, 2, or 3)
This is a very important step. Priority#1 should be given to things that definitely need to happen. Priority#2 which are needs to happen but can be delayed. Priority#3 is good to have.

(3) Review priority: 

Now review priority for each goal and make sure Priority#1 and #2 should not be given to more than 5 goals. Priority#3 can be given to the remaining goals.

(4) Calculate saving needs for each goal: 

for each goal, Calculate how much money do you need to save per month to achieve that goal on or before time.
For example, if your kid is 2 yr old and you need 25 lacs for his college fee after 16 yrs then with a simple calculation.
Per month amount = Final Amount / (No of years * 12 months)
=2500000/(16*12)=13020 rs
Now, this amount looks big. here I have missed one important and powerful concept which is compounding interest.
So if I consider that I will invest your money per month in some scheme which will give me an annualized return of 12% (It's an assumption here. It can be more or less) then let's calculate by using an online (www.sipcalculator.in) calculator.
per month amount for a 7% rate of interest = 7050 rs.
per month amount for a 12% rate of interest = 4300 rs.
per month amount for a 15% rate of interest = 3125 rs.
Surprised!! This is the magic of compounding.

Note:

• You need to review this list periodically like every month or quarterly because your goals having priority #2, #3 might change.
• For priority#1 goals you need to start investing immediately. If not all at least start by 1 and then after some time you can do it for all.
• If you think your income is very less to achieve your goals then think of the ways you can increase your income and decrease your expenses.
• Invest before you spend.

Please leave your comments and share this article link with your friends.