4 Ways to Prioritise Your Financial Goals
Most of us have many financial goals. Buying a car, buying a house, vacations are a few of the different financial goals. However, if we list all our financial goals, we may get overwhelmed looking at the things we want to achieve. Hence, just as we prioritise different aspects of our life, we need to prioritise our financial goals.
In this article, we will show you how to prioritise your financial goals in four ways.
Steps to prioritise your financial goals:
Prioritising your financial goals will depend on the importance of your needs and wants. Financial Planning Pyramid is a simple way to prioritise your financial goals and plan for it accordingly.
- Check your financial health
Before you decide your financial goals, it is important to check where you stand in terms of your income, expenditure, assets and liabilities. These aspects form the foundation of everyone’s finances.
To fulfil your financial goals, it might be important to cut your expenditures to build assets. If you have any bad debt such as credit card or personal loan debt, look at paying off your debt as soon as possible. Check these aspects and determine proper ratios between them. Checking your financial health will also assist you in planning for your goals.
2. Manage your risks
Life is uncertain. Risks such as untimely death, job loss, health problems, and accidents may hurt you and your family’s finances. Situations such as hospitalisation may drain all your lifelong savings. Hence, ensuring these risks is the starting point for a stress-free financial life.
List down all such situations and build a plan as per your requirements. E.g. having a backup plan for running EMIs or a child’s education plans.
You can park around six months of expenses in an emergency fund to take care of emergencies such as job loss, minor health problems and urgent house repair. Adequate health insurance will help you take care of your hospitalisation expenses. Life insurance or term insurance is important to safeguard one’s life. A life insurance cover will allow your family members and dependents to lead a respectable life and fulfil their goals.
3. Primary Goals or Important Goals
After you have taken care of the different risk aspects, it is time to invest in your goals. If you have many financial goals, you can segregate it into two parts: primary goals and secondary goals.
Primary Goals are the important goals that you need to prioritise over secondary goals. Buying a house, retirement planning, planning for children’s education are few of the common primary goals. These goals can differ from person to person. So choose the goals that are important to you.
Once you have made the list of your primary goals, figure out the current cost of these goals and the expected future cost. Also, decide the timeline of these goals.
Now, you need to choose the right investment products to fulfil your goals. Systematically investing in an equity fund through a Systematic Investment Plan(SIP) can help you plan and reach your long-term capital goals.
4. Secondary Goals
Your wants determine your secondary goals. You can postpone these goals with no adverse impact. Foreign holidays, buying a car and a second holiday home are a few examples of secondary goals. As the list of secondary goals may be endless, you can plan for your secondary goals after you have planned for your primary goals. It is a good idea to fund your secondary goals through savings rather than taking loans.
Depending on the goal timeline, you can have a separate investment strategy for your short term and long-term goals.
Conclusion: Investing for your financial goals is a better option than investing for returns. However, we may have many financial goals and investing for each of these goals may not be the right approach. Prioritising your goals can help you focus on the important aspects and goals before secondary goals. This will streamline your financial life and take care of you and your family members. Consult us to know more.
This blog is purely for educational purposes and not to be treated as personal advice. Mutual fund investments are subject to market risks, read all scheme related documents carefully.