Four essential parts of your goal settings

Suppose if you are not a regular athlete but you are asked to run a marathon of 42 km, which is scheduled to take place in just six months then that would become a daunting task for you. Similarly, if you are having a 30-year financial plan with some pot-of-gold goal, it may seem outright impossible.  Nevertheless, it is the beauty of setting up your financial goals and remaining disciplined with it that can help you to achieve impossible. The way to set and achieve financial goals is to focus less on a distant and intimidating figure than on what you can do this year, this month or this day, to help yourself reach that targeted figure.

There are four essential steps to set your goals in such a way that it becomes achievable:

Manageable time period

Longer period planning of says more than 15-20 years is always preferable as it smoothens out the volatility of the market and allows you to reap the benefit of compounding. Nonetheless, for many, 15-20 years is a too long a period to form a vision of what they want. Hence, a solid five-year plan can be extremely effective. It will help you to act now, as this is the moment that you can invest in the future. Any planning for less than five years is more to do with budgeting and how much you can save. It is less about investing.

When to start planning

Now is the best time to set your goals. However, many of us keep procrastinating under the pretext that we will start planning once our life gets settled. The more you wait for the right moment of settlement, the more difficult the goals become to achieve. Start with planning for the next few years, say 5-8 years and make adjustments in investing targets along the way as tax law changes and market shifts.

Expected rate of return on your investment

Once you have decided on the time period, you have to reach your goal. The next element of goal planning is to take into account the return rate on your investment. This is a rate at which you expect your money to grow in your overall portfolio over an established period. Many take it as an average rate of return generated by an asset class over a period of time. Nonetheless, you should also consider the volatility in these returns as they do not follow a straight line.

Putting numbers on the dream

First, you write down your entire dream and aim that you can afford in your future. These may include must-haves such as a new car, a home or college tuition for your child. They could also be desires, such as owning a vacation home. The common denominator is that they all require money and time to accomplish them. Once you are decided on your goal, check your cash flow and understand how much you can save and invest. Only after this, you can work backwards for a workable financial goal.