How to Achieve Financial Goals?

October 29, 2022
10
Mins Read
Table of Contents

This blog talks about the importance of having financial goals and their definition. You will learn what short-term, medium-term, and long-term goals are. It will help you understand how proper financial management through budgeting can enable you to fund your children's higher education or set you up for a comfortable retirement in the future.

This blog answers questions like what is the goal of financial management?

The application of the SMART (Specific, Measurable, Achievable, Relevant, Timely) principles is discussed as well. It also covers how you can achieve your financial goals independently or through a personal finance expert if required.

Introduction

Common financial goals for most people include retirement, higher education of children, and a downpayment for your home. These could be either short-term goals, medium-term goals, or long-term goals. To achieve these goals, you need a comprehensive financial plan.

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What is a Financial Goal?

When you assign a specific monetary value to a dream or vision you have, they turn into financial goals. For example, the cost of higher education for your children could be 82,000 Naira, and the price of a home would be around 60 million Naira.

Here are the key qualities for good financial goals:

  • Specific: A higher credit score is an ambiguous statement. A credit score of 750 is specific and can be a short-term goal.
  • Measurable: Happiness cannot be a financial goal, but a home of your dreams valued at 60 million Naira that would make your family happy is a tangible long-term goal.
  • Achievable: If your credit score is 300 today, it won't become 750 in 2 months. If you have a time horizon of 2 years, then this is an achievable goal.
  • Realistic: Your financial goals should be based on your current and expected income. With average pay, if you dream of owning a Ferrari, it is quite unrealistic, right?
  • Timely: You should be able to define your goal as short-term, medium-term, or long-term. You can't achieve a goal 'soon' or 'in the near future'. The timeline needs to be defined.

What are the Types of Financial Goals?

As mentioned earlier, based on their timeline, you have primarily three types of goals. They are:

Short-Term Goals

The duration of short-term goals is under 3 years. Examples of short-term goals include paying off your credit card bills or making the downpayment for your car.

While these are general examples of short-term goals, specific examples of such goals might include preparing for your long-term goals. Here are some short-term goals that should be part of your financial plan:

  • Spending Habits: Analyse your spending habits and eliminate wasteful expenditures. Think of those regular trips to expensive restaurants that you don't need or streaming services you don't watch. Cut them out, now!
  • Creating an Emergency Fund: This needs to be planned immediately because emergencies strike without warning. Calculate your necessary monthly expenses and set aside a fund to cover expenses for six months.
  • Achieve Your Target Monthly Saving: Start working on achieving your monthly savings target since, without these savings, you can't invest in your medium and long-term goals.
  • Get a Financial Advisor: If you feel you can't plan your short-term goals on your own, it's better to find a professional advisor.

Once you're on track with your short-term goals, you need to focus on your mid-term goals.

Medium-Term Goals

While short-term goals need to be achieved before three years, the duration of medium-term goals ranges from three to 10 years.

By the time you reach this stage of your financial planning cycle, you know the actions required to reach your key financial goals in life.

You need to approach your medium-term goals using the SMART method to avoid setting your targets too high and risk failing to achieve them. Take the help of a financial advisor to keep you on track.

Here are some examples of medium-term goals:

  • Downpayment for Your Home: A home is a long-term goal, but the downpayment is part of the medium-term goal. In this period, you need to pay a downpayment that varies between 10% to 30% of the market price of your home. Be careful that you don't pay the downpayment for your house from your emergency fund! Learn to separate your goals.
  • Second Career: By now, you know if your primary income is sufficient to achieve your financial goals or not. Even if it is, create a safety net for yourself by making your hobby a second career. Having multiple income streams helps protect your financial goals better than a single income.
  • Settling a Student Loan: By now, you would have a career and earn a steady income. Use your savings to pay off the instalments for your student loan in 3 to 5 years so that you can start saving and investing for your long-term goals.

With additional income and settling your medium-term goals, you are now ready for your long-term goals.

Long-Term Goals

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These goals have the longest duration and have a timeline of more than 10 years. Some examples of long-term financial goals include:

  1. Enjoying the Retired Life: To enjoy your retired life, you should have enough passive income (investments that generate income) so that you don't need to worry about working all your life. If you start early and save enough, you can retire before actual retirement and live your passion. A part of your wealth should generate regular income to cover your regular monthly expenses, and the remaining part should be allowed to grow.
  2. Dream Trip: With your finances in place, children well settled, and debts paid off, it's time to reward yourself with a well-deserved trip.
  3. Business Owner: Quit your job and start your business with the capital you've created. Touch your emergency fund only if required, and replenish it as early as possible. Start small and scale your business with experience.

10 Financial Goals to Help Relieve Yourself from Debt

To stay debt-free, consider these 10 financial goals:

  1. Know Your Cash Flows: Without knowing your cash flows, you won't know what expenses you need to stop.
  2. Settle Credit Card Dues: Interest on credit card debt can upset your financial goals.
  3. Create an Emergency Fund: Expenses for six months should be set aside for emergencies like accidents.
  4. Comfortable Retirement: You won't have a job all your life, so save for your post-retirement years.
  5. Stay Within Your Budget: Your cash flows (income less expenditure) are positive when you stay within your budget.
  6. Learn New Skills: Enroll in courses to get a promotion or a side gig for extra income.
  7. College Education: A graduate degree improves your chances of a higher salary package. Education at the top universities in Nigeria would cost you somewhere between 400000 NGN to 500000 NGN. If you want to be a petroleum engineer, the highest-paying job in Nigeria with a monthly salary of 6 million NGN, you need a graduate degree from a foreign university. This would be much more expensive than graduate education in Nigeria.
  8. Downpayment for a Home: The average cost of a home in Nigeria is 60 million NGN, and downpayment ranges from 10 to 30%. The higher the downpayment, the lower the monthly EMI (Equated Monthly Installment) you have to pay.
  9. Higher Credit Score: Banks use your credit score to measure your repayment capacity. If you have a higher credit score, you are more creditworthy and will get loans at lower rates and longer repayment periods.
  10. Capital for Business: You might want to start a business after gaining experience. Research the initial investment required, and start saving and investing depending on your time frame.

Importance of Financial Goals

Having financial goals is vital for you, and here are some benefits which clearly state why:

Easier to Achieve

To achieve your financial goals, you need to write them down.

You set a target for yourself, which could be revised depending on the changes in your financial and personal life. It's tangible, and that is why the term financial is added to a goal.

When you manage your short-term goals well, the chances of achieving your long-term goals are higher. When you are aware of how much you need for a financial goal, you start saving and investing towards it.

Lower Stress

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Uncertainty is the biggest cause of stress. When you have a budget, know how much you need to invest to achieve your financial goals, and the timeline for each goal, you are more certain about your present and future.

Not only are you more confident about every move that you make, but you also suffer from lower levels of stress.

You don't get worked up about your future since you are working towards a financially stable and healthy future for yourself and your family.

Conclusion

Having tangible financial goals is the secret to a balanced and stress-free life. Plus, nowadays, with online platforms having robot advisors and offline personal finance experts, creating your unique financial plan is easier than you think.

On online financial planning platforms, you just need to enter information about your financial goals, like the cost of your goal in Nairas, the time left to achieve the goal, and the tentative return expected on your investments. You can get an estimate of how much you need to save and invest every month.

If you don't feel confident with DIY solutions, going online and setting up an appointment with an experienced personal finance professional is a great way to begin your journey of financial goal-setting.

FAQs

How To Create a 5-Year Plan For Financial Success?

Here are the steps to follow to create your 5-year plan for financial success:

  1. Define your ideal life and decide what your short-term, medium-term, and long-term goals will be.
  2. Assign a monetary value to all your financial goals and when you need to achieve them.
  3. See if your financial goals meet the SMART (Specific, Measurable, Achievable, Realistic, and Timely) criteria or not.
  4. Use a visual representation (pictures) of these goals for motivation.
  5. Consistently work towards your goals, and you will be sure to achieve them.

What are 5 SMART goals examples?

Here are examples of 5 SMART goals:

  • Pay off the highest credit card bills in the next billing cycle to reduce debt.
  • Have 200 million Naira on retirement 30 years from now.
  • Collect 90,000 Naira for kids' higher education 10 years from now.
  • Make a 20% downpayment for a home valued at 60 million Naira 5 years from now.
  • Limit spending at restaurants to 2000 Nairas a week.

How to Set Financial Goals?

Here are six steps on how to set financial goals and achieve them:

  • Set Priorities: Make a list of everything you want to accomplish in order of priority.
  • Time-Based Goals: Divide your goals into short-term, medium-term, and long-term.
  • Apply the SMART method: Your goals should be Specific, Measurable, Achievable, Relevant, and Timely.
  • Prepare a Budget: A budget helps you calculate your cash flow, and this is calculated by deducting your monthly expenses from your monthly income.
  • Invest What You Save: Your budget will reveal your savings, and you can start investing toward your goals.
  • Evaluate Your Progress: Check the deviation from your plans and take corrective measures.

How to Stay Focused on Your Financial Goals?

Having financial goals is the easy part; staying focused might not be! Create a goal chart to make it easier for you to stay focused on your financial goals.

Follow the steps mentioned here to have your customised goal chart:

List Your Goals

Make a comprehensive list of your goals in order of priority, following the specific, measurable, achievable, relevant, and timely principles.

Set the Timeline for Each Goal

Decide if your goal falls in the short-term, mid-term, or long-term category to calculate the time left to achieve the goal. Keep this time flexible, as situations may change.

Determine the Cost of the Goal

Find the cost of the goal using the future value method and determine how much you need to save and invest per month. You could use the help of a financial planner to assess these calculations or use free online calculators.

Devise Strategies to Achieve the Goal

Some strategies to achieve your goal could be creating extra income, removing non-essential expenses, or selling assets you don't need.

Choose the Ideal Combination

Check your list and find the ideal combination depending on your existing funds, earning opportunities and existing cash flows, and the timeline of your goals.

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