After choosing the destination, it is better and more efficient to plan your journey. A planned itinerary will help you make the most of your resources. It is important to identify your life goals before you start saving for them. You should set your goals and make a plan to reach them. Setting goals is just one part of financial planning, which also involves meeting them. In this article, David Rewcastle, Darien, CT financial analyst discusses financial planning and goal setting.
Goal Setting
Setting goals starts with identifying short- and long-term goals. Saving for an expense like buying furniture or annual vacation may be a short-term goal. However, saving for a home loan down payment over the next 3-5 years may be a medium-term goal. The long-term goals could include funding one’s retirement, child education, or meeting the needs of a spouse.
It is important to clearly define the goals you want to reach. This includes assigning them a value and setting a time frame to accomplish them. It is important to be clear about what goals you want to achieve. This helps to link the investment goal to the desired goals.
Here are few tips for Setting Financial Goals
Establish a Budget
“Until you know where you are now, you can’t know where your future is.” It means creating a budget,” David Rewcastle, a Senior Analyst at E3 Research Associates, an Independent Third Party Research and Analytics Company, and an Instructor of Economics at the University of New Haven. “You may be surprised at how much money slips through the cracks every month.
If you’re a rookie, for example, you might consider buying a car within the next few years as one of your financial goals. If you’re married and have children, you might want to create a fund to help your child get to college. You might also want to purchase a home or plan for retirement. Before you move on, take stock of what is important to you.
Create an Emergency Fund
An emergency fund is money you set aside specifically to pay for unexpected expenses. To get started, $500 to $1,000 is a good goal. When you meet that goal, you’ll want to expand it so that your emergency fund can cover greater financial difficulties, such as unemployment.
“If you didn’t have an emergency fund prior to the COVID-19 pandemic, you likely wished you did. And if you did have one, you may have tapped into it and need to replenish it.” David Rewcastle stated.
Learn skills to increase your income
It doesn’t necessarily require a return to college to earn an additional degree. This could mean that you take on more responsibility or training at your job. You might find a mentor who can give you tips and provide feedback. This could mean taking part-time jobs, attending workshops and conferences, networking in your field, or even taking classes at the library. These are all ways to gain more knowledge and contacts. Even small steps can pay off.
Stay organized
While setting goals and budgets are important, they are useless if you don’t have a plan for staying on track. To achieve your financial goals for the year, it is important to stay organized. There are many budgeting apps and tools that can help you stay on track. The more you organize your personal budget, it will be easier to manage.
Save More for Retirement
Most people with an employer-sponsored pension plan will get a match of a percentage of your salary, according to David Rewcastle. You might be eligible for a match of 3% to 7% of your salary. If you are able to contribute enough to receive your full employer match, you can achieve a 100% return on your investment. This is the most important step in retirement planning.
Benefits
It is much easier to manage and control one’s finances if one has a plan and establish goals. You can curb any temptation to use short-term funds for immediate or discretionary purposes. Impulsive buying can also be curtailed. It is important to set goals ahead of time in order to make the most of your resources. investable surplus. This gives you an incentive to use the approach of “Income minus savings equals to expenses” rather than “Income plus expenses equals to saving”.
Challenges
Goal-setting can be difficult. Procrastination is one of the greatest challenges. There could be a change to your financial situation or life circumstances. You could lose out on the benefits of compounding if you delay in setting goals. You could end up over- or undersaving, and resources may not be being used optimally. It is better to prepare for the unknown future in advance.
Another challenge is to sacrifice today in order to have a better tomorrow. A small amount of savings can help you build wealth over the long-term. If the goals are not clearly defined, investing may not be much of a help. According to David Rewcastle, some common mistakes in the process include setting unrealistic goals and looking for quick-fix solutions to financial problems instead of a long-term strategy. Sometimes, investors may expect unrealistic returns and ignore the fundamentals of each asset-class.
Conclusion
Financial planning begins with setting goals. This will help you reach your financial goals at different stages of your life.
“Setting goals gives direction and meaning to the financial decisions that you make throughout your life. Many investors mistakenly believe that financial planning is the same as investment planning. However, it is just one part of the latter.” David Rewcastle concluded.
All these factors being considered, it is important to begin the goal-setting process immediately.
Thanks to David Rewcastle for sharing his opinions on this post.