A specific goal
You must have a financial dream which you can fulfill, If I describe it in my own words, then I say that goal is a destination which you envisage or imagine in your mind. The goal has two main elements, one is the specific time limit and the other is its quantification. I quote an example of an ideal goal like I say my goal is to reduce 5 Kgs weight (quantification) in 3 months (time limit) and absence of any of the two elements results in the mediocre results. Therefore, in order to fulfill your financial dream your goal must include both the elements of the quantity and the time period in it.
"Defined time period and the quantification are the two main elements of the goal
A few examples of the goal:
(2) Breakdown your financial goal
You can have multiple goals before realizing your ultimate financial goal. Each one of us has financial goal at the different stages of life like you need money for vacations in next 3 years, money required for children education and then marriage and in the last money required to finance your retirement. So, you need to break down and keep on realizing your goals at the different stages of life. The breaking of goals will act as a milestone for you towards the final realization of the goal.
(3) Analyze and evaluate your present net-worth
After setting your goal, your next step is to know the distance between your goal and the present condition or the situation. The farther you are from your goal, the more and consistent efforts you need to achieve it. Your present financial position or the net-worth is the difference between your income source and the expenses, and other financial obligations like interest on loan etc.
Let me explain the concept with the help of an example:
(4) Forecasting and extrapolating
Now, you have to find out the minimum rate at which your net worth should grow in order to achieve the goal in the specified time limit. The extrapolating and the forecasting will let you know the minimum value of the growth rate. Let us understand with the help of an example:
(5) Make a plan or the strategy to achieve your financial goal
I have set the goal and determined the growth rate to achieve my goal in the defined time limit. Now, I have to devise or formulate a strategy/plan to achieve this growth rate. Here, I should find out all the feasible investment options like be FD, RD, Stock market, Bullion market, and Real estate along with their average return they offered to their investors in the past. I think, instead to investing the whole amount in one asset category, it is better to diversify it into different asset categories, helps in mitigating the risk by allocating the amount into different assets.
I should spread my investment in different asset categories in such a manner that it offers me an average return of 16.1% over the period of time and helps me in the realization of my financial goal.
Example of the asset allocation:
(6) Risk identification and Insurance
As I told you that realizing a financial goal is a long term process which is just like running a marathon where you fall and rise many times but still you have to keep on moving to achieve your target. Here, I need to analyze every risk associated with it like:
(7) Be consistent in your efforts towards the realization of your financial goals
All the above things can only be possible if you consistently stick what you have planned and keep on taking one step forward every day, then only you will be able to achieve your financial goal. The longer you are consistent in your efforts, the easier it become to achieve your goal. A small amount invested regularly can become a handsome amount over a period of time because of the effect the compounding. It is better to invest small amount regularly then to wait and invest the large amount later in your financial journey.
A final note
The realization of the financial dream is just like any other dream which needs a defined path, milestones at the regular intervals, accurate forecasting, effective strategy, right asset allocation, regular investment and last but not the least, the consistent efforts. Do not wait for tomorrow, set your financial goal today because the early you start, the more are the chances of achieving it time.