When making our new year resolutions for 2021 at the beginning of this year, we all must have jotted down at least 1-2 financial goals as well. It might have been to save ten thousand rupees each month or save hundred thousand rupees by the end of the year. It might have even been to set up an emergency fund or try your hand at investing with at least twenty thousand rupees allocated for that purpose. Now, as we near the halfway point of the year, how much of those goals have we really achieved or are on the way to achieving?
If the answer to that question is a sad one, worry not. Most people are likely to be in the same boat as you are, struggling to balance their daily lives with their new year resolutions. This is due to one common mistake everyone tends to make. One of the most crucial mistakes people make when setting goals, especially financial goals, is being unrealistic about the whole process. Saving twenty thousand rupees when your monthly salary is just forty thousand is not practical, especially in a time when cost of living and other commitments are at an all-time high. Therefore, it’s hardly surprising when those financial goals seem out of reach as time passes.
As there’s still more than half a year left, you have time to relook at your financial goals and set new , more realistic ones and achieve them as well.
Here are some tips to help you set realistic financial goals and achieve them.
Understand what financial goals are
A financial goal is, simply put, any plan you set for your money. It could be saving, investing, settling debt or reducing expenses. Setting financial goals helps you control your money inflows and outflows, rather than allowing your money to completely control you. With the right set of financial goals, you will have a clear focus and allow you to hold yourself accountable when you overspend or spend unnecessarily. Financial goals can be long-term ones (annual savings) or short-term ones (settle an outstanding low-value loan).
Write down your goals
Based on what’s more important to you, think about what financial goals would be most valuable to you and then write them down. If you don’t have any savings, start from there. If your savings are solid, look at earning some extra money through setting aside a small fund for investing. If your expenses are all over the place, perhaps your goal could simply be to track your expenses and follow a budget. Financial goals don’t need to be huge long-term goals - even a goal you can complete within 2-3 months that would affect your quality of life is a very worthwhile goal e.g. limit ordering food to less than three thousand rupees each month.
Make them SMART goals
Now that you have your list of financial goals, convert them to SMART financial goals. This means Specific, Measurable, Attainable, Realistic and Time-bound. For instance, “I will save money this year” is not a SMART goal. A SMART version of this financial goal would be “I want to save ten thousand rupees each month for the next six months”. The benefit of setting SMART goals is that it gives you a clear vision of the way forward and it’s easy to track your progress with time. Setting SMART financial goals also helps you break down a large goal (e.g. invest 25,000) into more realistic tasks (e.g. set up a trading account, save a few thousand each month, invest five thousand to start off with etc.)
Check if they are feasible
When setting SMART financial goals, the AR stands for Attainable and Realistic. These are often the two aspects of financial goals that people often get wrong. The financial goals that you set should not be impossible to achieve and it should be relevant to your current status and your purpose. For instance, if you have no savings, setting a goal to look at investing twenty thousand rupees annually isn’t a SMART goal as it’s not realistic and doing so might end up doing more harm than good. If you can practically only think about saving around two thousand rupees each month, don’t try to go above and beyond this as it will only end up with you depositing and withdrawing money from your savings account as your expenses prove to be greater than the money left after “saving”. It might take you a few months to get the realistic amounts but that’s okay, and it brings us to our next tip to setting financial goals that you can actually achieve.
Do a status check every 1-2 months
Financial goals need not be set in stone. As the months progress and you find out that the goals that you set for yourself are unrealistic due to a sudden surge in expenses or reduction in income, don’t hesitate to go back and amend your financial goals. Having unachievable goals will just demotivate you completely and you will not even try to achieve these goals. By tweaking them every few months, you can stay on track with these financial goals. You might even be able to set slightly more difficult goals for yourself too, if all goes well! For example, if after a few months, you find that you are easily saving five thousand rupees each month, you can maybe add another financial goal about investing thousand rupees each month.
The road to achieving your financial goals will never be linear or consistent. After all, life is completely unpredictable and the whole point of setting financial goals is to try and prepare for any eventuality. As you progress through each month, striving to reach your financial goals, you will find out that you have developed good financial habits that will far outweigh the actual goals in the long run.