Goal-setting is the starting point of any task or journey to be undertaken. This is applicable to the realm of finances as it is to most other endeavours. Some may argue that people can survive without goals since life is uncertain anyway. Those who claim to have no goals set may prefer to have hopes and dreams. However, if you have no stated goal, how would you know if your hopes or dreams have a chance? Without the power of goals, there will likely be hopes instead of expectations and dreams instead of reality.
Financial goals are no different in terms of function and purpose. They help you achieve or cover tangible and intangible needs like a healthy bank account, financial security and peace of mind. The power of financial goals resides in the fact that they establish our future in our present. Our goals in this context would specify what we want to achieve, when we want to achieve it and how we want to reach it. Truly powerful financial goals would incorporate why we want to achieve a particular objective. The following points demonstrate the power of financial goals:
a) Budgeting is empowered by them.
Arguably, one can do a proper budget with no real goals in mind if one uses acceptable arbitrary figures. However, budgeting in the context of financial goals adds meaning to a budget. The budget comes alive, as it is now a roadmap to success. You would know that you’re saving 25% of your income, because you want to own your own home in six years. This is important, since we often have difficulty establishing needs and wants. If you fully value the financial goals you set, you may be able to make wise budgeting decisions, like eliminating superfluous activities or reducing luxuries from your expenses.
b) Financial goals help us exercise self-discipline.
This is where the “why” of financial goals come in. We have the micro view before us in terms of the budget. Our financial goals helped us to form this budget. Would we stick to it? Referring to the bigger picture again is what will help us to balance current and future needs. We would be less likely to deviate from the daily/monthly plan because we understand that the budget we set is governed by the bigger picture- future comfort. In times of financial strain, financial goals would help us prioritise and exercise necessary discipline when it is most needed.
c) Choosing the right financial instruments is another power-point of financial goals.
Knowing that goals involve knowing quantity and time essentially, we would be able to diversify our portfolio meaningfully. Many people still save by guess; not paying much attention to the real return they would get from an investment vehicle. Financial goals sensitise us to the importance of accumulates rates and rates of returns to our future requirements.
d) Financial goals help us to recognise the importance of protecting those goals.
Financial security is important to most people. Investors would prefer to know that they would not lose substantially. In the same way, those with financial goals would understand how easily they may be derailed by unforeseen and unfortunate circumstances. These people would be more prepared for these because they would have built a sound financial plan around their goals.
Whether you’re determining how much to save for retirement or how much you should save towards your child’s college fund, financial goals provide guidance and direction needed. They help set priorities, direct our financial planning and provide us with the discipline to execute the plan we create. Power is related to choice. Setting financial goals give you the power to choose and direct your wealth towards the tangible or intangible things that you value most. The ability to choose your destiny and exercise control over it is the power of financial goals.