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What is a financial goal? What is not?

If you know the amount, when you need it, and you can save for it as well as realistically hope to achieve it, then that amount is a financial goal.

Most of you definitely want to become rich. But what does it mean for you? Is it owning a car? A palatial house or a flat in an upscale apartment complex? Having more money than you can spend?

Now, consider this. Are any of these financial goals?

The short answer is no. Let’s consider why this is so as we try and understand what exactly a financial goal is, and why knowing it matters.

What is a financial goal?

If you know the amount, when you need it, and you can save for it as well as realistically hope to achieve it, then that amount is a financial goal.

This also means that there will be financial goals, which you might not be able to afford now, but which you will be able to afford when your income goes up. Financial goals can, and do, shift depending on your circumstances in life.

There are three key components of any financial goal

1. It is a specific amount or a specific range

Retirement is a goal, but not exactly a financial goal. The amount you need in your retirement is. It could be Rs 1 Cr or it could be Rs 3-4 Cr. A financial goal is generally an amount or a range. It can also be a series of amounts that you will need on a regular basis in the future.

2. There is a realistic timeline attached to it 

In the same example, you could have a retirement goal of Rs. 3 Cr. But if you have only five years to achieve it then, until and unless you earn in the crore range yourself, it is not a goal. Even the highest return giving instruments, such as equity mutual funds over the long run, need time to actually grow your savings. 

3. You can actually save, and if needed invest, for it.

It’s not a financial goal till you can afford to save for it. Think about it. Unless you can save a set minimum amount (depending on where the amount is invested) that will realistically get you to the goal, it can’t be called a financial goal. Just like your expenses, financial goals should also be “affordable”.

This also means that there will be financial goals, which you might not be able to afford now, but which you will be able to afford when your income goes up. Financial goals can, and do, shift depending on your circumstances in life.

The only financial goal that can’t be shifted too much is retirement as it is not just your decision but that of the government (when it decides retirement age), companies (their policies), and the economy in general (if your skill set is rare, retirement can generally be pushed back).

So, what is not a financial goal?

If there is no number or range attached to a goal and you don’t know when you need to arrive at that goal, then you aren’t talking about a financial goal. You are talking about aims or life goals which could be something you just have a general idea about at this stage in your life.

But take it with a grain of salt

All said and done, financial goals stem from your life goals. As you move through life, you will acquire tools and ways to achieve your life goals and on that path some of your life goals will involve a financial goal. If you are young, don’t get hung up on whether you actually have a financial goal, as of now. What matters is that you inculcate the habits necessary to meet financial goals, such as saving and investing regularly. The clearer your life goals become, the more understanding you will have about what exactly should the financial goal be.

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