You must segregate your short and long-term goal, identify the link between each goal, draw a plan and achieve each goal as per that plan.
Everyone wants to be rich and successful. You may be earning good money, but if you do not set the right goal at the right time, then you may not able to utilise your money in the right way. Planning a high-end vacation while living in a rented accommodation may not help you in the long run. It is rather better to save the vacation money and use it in buying a property of your own and do away with monthly rents. It is therefore very important that you prioritise your money goals.
In this article, we discuss 5 vital points that can help you prioritise your financial goal.
Focus On Retirement Goal
Retirement is one of the most important goals around which rest of your short and medium-term goals should concentrate. You may adjust or make several changes in the short and medium-term goal or even cancel some goal, but retirement goal should not be compromised. If any of your current financial decisions has a negative impact on your retirement goal, then you must take corrective measures so that you can accomplish the objectives as per plan. Therefore, your short, medium and long-term objective should revolve around your retirement goal. Post retirement you’ll not have regular business or job income, so a financial planning will ensure that you can live a normal life without any money problem.
Build An Emergency Fund And Ensure Risk Mitigation
During a financial emergency people often fall into debt trap if they do not maintain an adequate emergency/contingency fund. For example, you lose your job and are jobless for 4 months. To meet your monthly needs, you borrow money from banks and exhaust your Credit Card as well. You could have avoided this situation had you maintained an adequate emergency fund. Lack of emergency fund can deter your investment plan and unnecessarily put you into financial distress.
Creating an emergency fund should be one of your key financial priorities. You must maintain an emergency fund which should be adequate to pay for all your expenses including EMI, bills etc for 6 to 8 month period. You should update the fund size from time to time as per inflation rate and change in your lifestyle.
Similarly, you must mitigate risk such as health, life etc by buying Insurance.
Look After Your Debts
Debt is an important part of your money goal. It allows to leverage on your financial capacity to achieve big goals in your life like buying a home on loan, buying a car on loan, Education Loan for children’s higher study etc.
You must use the debt option at the right time and for the right purpose. Plan your debt well in advance and check impact of such debt on your other financial goal. Timely repayment of debt is very important so that you can always have a good Credit Score and maintain a high borrowing capacity.
Debt for unnecessary things can deter your essential goals for which you may require borrowed funds.
Complete Your Responsibilities
Responsibilities like child education, buying a home, marriage of children and other family responsibilities should be prioritised in synchronisation with your retirement goal. You must target your retirement goal while considering the fulfilment of key responsibilities in the midway. Invest and make adequate fund to accomplish your short and long-term responsibilities.
Accomplish Your Desires
While chasing the money goals, you must not ignore your desires. Once you set aside funds for retirement, responsibilities, emergency fund and debt repayment, you should also accomplish your desires like going on long vacations, buying expensive gadgets etc.
Most of your financial goals are interlinked to each other. Therefore, while prioritising such goals, you should take care of timing and consequence of not achieving any goal.