The purpose
of financial planning is to achieve your goals. Your goals help you to shape
your investments as per your requirement. Therefore, you must be very clear
about your goals before you start planning your finances. Your financial
advisor will also be able to help you better if you are clear with your goal. Here’s
what you should consider before finalising financial goals.
Differentiate between goal and dream
Goals are
different from dreams. One has many dreams but not all of them may be
realistic, whereas a goal is definite, realistic and achievable. For example,
if you are a small or mid level employee and your wish is to vacation abroad
every year, this dream seems a bit far-fetched. A more realistic goal would be
to plan a vacation abroad in next 1-3 year, depending on your budget. Once you
differentiate your goals and dreams it will be easier for you to plan your
investments accordingly.
Keep inflation in check
While
planning foreign education for your child or planning a foreign vacation in
medium to long-term, the inflation should be considered not only for home
country but also the country where you are planning for the education or
vacation. The inflation rate for the two countries may differ and will impact
your calculation of the expenses that will be needed. It will also help to
check how lenient the country’s policy is for foreign students in terms of
education and employment.
Think long-term
Don’t just
set your goal on something just because it seems affordable in the short or
medium term. Instead check whether it will still be viable in long term. A
newly married couple may think about buying a 1 BHK house as it might be
affordable to them. However, if they plan to have children in the future, the
same house will become too small for their needs. They will also have to go
through the process of searching for house, buying house and paying stamp-duty
and registration all over again. It will be better for them to wait a couple of
years more and invest more to be able to buy a bigger house.
Do you really need it?
A simpler,
inexpensive alternate might be available for your target needs which will make
saving up for your goal redundant. For example, buying a car nowadays is more
of a liability than asset. The traffic situation is getting worse every passing
day and cheaper and better alternatives in the form of public transport, taxi aggregators
are easily available. People also generally take up loans for purchasing car
and they end up paying more than what it is worth.
Retirement planning
Though it
seems far away do not forget to start planning for your retirement. With your
retirement goal you should be able to take care of your household expenses,
medical expenses, etc. You might also have other retirement goal such as
children’s marriage or higher education, hobbies, vacation and so on. You will
thus have plan what will be and what not be feasible for you once you retire.
There might be some expense that will reduce but there will be some new one
that may add up.
