Five Financial Goal Planning Mistakes
As a thumb rule, make sure your goals are as specific as possible.
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It would appear that “Financial Goals” is the new buzz phrase in the world of personal finance. A slew of DIY platforms are being built in order to link investments with goals; and yet, it seems that very most individuals are as unaligned to their long term objectives as ever! If you’re one of them, you may be making at least one of these all too common goal planning mistakes. Watch out!
Setting nonspecific goals
As a thumb rule, make sure your goals are as specific as possible. A vague goal such as “saving for your daughter’s education” is unlikely to catalyse you into staying the course when the going gets tough. Instead, bring your goals to life by curating them carefully. Think of a target course of institute for an education goal, for instance. For a wedding goal, think of the actual venue, the number of people and the costs you’ll incur in the process. What you end up doing finally might be wildly different; but the specificity will greatly increase your chances of having saved up enough!
Setting goals that are not measurable
Another common folly is to set goals that are not clearly measurable. “To have my kids married off in style by 2025” sounds great, but can you actually set up periodic checkpoints for such a goal, to see if you’re on track to meet them? Measurable goals include a clear (inflation adjusted) target amount that is properly planned, and a structured savings plan (such as a monthly SIP) that you then run in a disciplined manner, to achieve them.
Being overambitious with your savings target
It’s not uncommon to see people getting carried away during initial planning discussion with their Advisors; after all, the lure of a great future can be quite dazzling, to say the least! The caveat is that these people typically end up stretching themselves too thin by starting to save more than they comfortably can. This results in a yo-yo situation of stopped and restarted investments that work to their detriment in the long run. For best results, make sure you prioritise your objectives and start with the goals that matter the most. It’s critically important to only save what you can without overburdening yourself; that way, the continuity of your plan will be maintained.
Saving for goals that aren’t relevant
It’s quite obvious that the more relevant your goals are, the higher your levels of commitment towards them will be. And yet, it’s not uncommon to see people brushing aside critical long-term goals such as their retirement or their kids’ educations, only to start to save for less relevant goals such as a new car or renovating their homes. Such irrelevant goals are bound to fall by the wayside sooner than later, leaving you with lesser time to save for more critical life objectives. The lesson – start with your most relevant goals and then move on to less relevant ones.
Keeping them open ended in terms of a target date
A final folly would be to not “time-bind” your financial goal clearly. Agreed, your target date may be fuzzy when you start planning (after all, it’s not possible to predict the flow of life’s events to the T), but assign a date you must! Only the assignment of a date will yield a clear required saving amount, and also allow your Financial Planner to advise the correct investment avenue for that particular goal. So, make sure you don’t have open ended financial goals that lack a target date.