Advantages of setting goals

Clarity:

When you set a financial goal, you answer several questions – importance of the goal, the financial value of the goal and the time that you have to achieve it.

Financial understanding:

When measurable financial goals are set, you know the impact of your financial decisions and how it will impact your goal and helps you stay the course.

Motivation:

Having financial goals inspires you to reach the end, which is why most people who plan for financial goals, tend to achieve them before the set timeline

Decision making:

Goal setting helps you focus on what is important to you, which helps in right decision making when you spend, save and invest.

The popular parable ‘failing to plan is planning to fail’ is best reflected when it comes to your finances. Fulfilling your future financial needs depends on the plans that you make. Every person or family has a different picture of the future they wish to build. It is important to ask yourself where you wish to be financially in the future, because such questions will give you ideas of how your future will be – your financial dreams and wants. Setting financial goals is the first step towards converting your financial desire into reality.

A benefit of setting financial goals in advance is that it helps in managing and controlling one's finance. By doing so, you stay away from the temptation of diverting your funds to any discretionary expenses, making any impulsive purchases take a backseat. It gives you the reason to follow the approach of 'Income minus saving equals to expenses' rather than 'Income minus expenses equal to saving.'

Likewise, a comprehensive financial plan helps in giving a clearer picture of your current financial state which in turn helps you set realistic goals. For instance, college graduation may cost Rs 5 lakh today, but at 10 per cent education inflation, it swells to nearly four times this value 15 years later. What this means for you is to factor inflation when setting future financial goals. Yet another advantage of setting financial goals is the discipline it instils in you to work on the financial goal.

Procrastination is one of the biggest hurdles to realising financial goals. Delay in executing a financial plan towards a goal could cost you heavily as you would lose out on the benefit of power of compounding. Delays could also cause under-saving, with resources not being utilised optimally. It is therefore better to be prepared to face the uncertain future well in advance.

Moreover, one has to come up with a strategy or plan for meeting the goals under the current situation while keeping the future goals in mind. For better results, one has to make the right choice of asset-class based on one’s risk tolerance. Successful people begin with writing down financial goals and then setting their priorities to accomplish their goals. Setting financial goals is a small step that can create a giant leap for your financial well-being.