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FINANCIAL GOAL

What is a Financial Goal?

Before we define what a financial plan is, we first need to define what a financial goal is. Let's do it in parts. A goal is defined as something you are trying to do or achieve. For example: get better grades, buy a new computer game, finish high school, or beat your high score in Candy Crush.

A financial goal on the other hand, is defined as a goal that's based on money. For example: buy a house, create a 6-month emergency fund, or open a savings account. Financial goals can be short term goals that are achievable in 12 months or less, or long term goals that require more than one year to achieve.

Why do I need to set a Financial Goal?

Most people want to have a certain degree of financial success. Some people want to be rich, and some people just want to be more comfortable in their lives. It is important to note down the goal so that you can set actions that is aimed towards achieving the goal. Having a goal also lets you evaluate your actions whether they are still focused on achieving the goal.

What does a Financial Goal look like?

Let's say for example, you want to buy a new cellphone. "Buying a new cellphone" is not a clear enough goal as it doesn't tell you what cellphone you are trying to get and when you plan on getting it. An example of a Financial Goal related to this would be:

"Buy an iPhone 7 worth P35,000 by July of 2018."

By stating the goal in this manner, you know exactly what it is that you are planning to buy as well as when you want to buy it.

In a business, they also need to set financial goals for themselves. These goals once it is achieved is what keeps businesses running and growing so that people won't have to lose their jobs and consumers can continue to purchase goods. An example of how a business goal would be structured would be:

Expand business services to include small and bulk delivery.

This will cost Php 150,000 for the delivery bike and Php 10,000 for dry ice packs. Php 160,000 will be paid within 16 months, at Php 10,000 a month.

How do I set a Financial Goal?

Setting up a Financial Goal isn't as simple as just telling yourself that your goal is "to be rich." A goal

should follow the S.M.A.R.T. framework.

1. Specific

A goal that is not specific may lead to unachieved goals. This is because, you don't know exactly what you're trying to achieve. A goal needs to be clear enough that when you read it, you know exactly what the goal is. For example, the goal of being "rich." Being rich means something different for every person. This can then be subject to a lot of interpretation. If we change this to "I want to have a Net Income of P12,000 per month from my primary source of income." What this tells you is that your goal is to have at least P12,000 each month even after taking out all of your expenses.

This also tells you that this doesn't include other incomes you may receive from other sources apart from your primary place of work. Goals need to be able to answer the following:

What do I want to accomplish? Why is this goal important? Who is involved? Where is it located? Which resources or limits are involved?

2. Measureable

Goals also need to be measureable. In the previous example, the way it is made measureable is by having a peso value to it. Making the goal measureable enables you to see how close you are to your goal. In order to make sure that your goals are measureable, it needs to answer the following questions:

How much? How many? How will I know when it is accomplished?

3. Achievable

Coming up with goals, you need to make sure that it's actually possible for you to achieve it. Making sure that the goal is attainable makes you more inclined into achieving it. You will have to take into account the constraints and limitations that you have. Looking at these constraints, the goal must still be achievable.

Part of making sure that it's achievable is making sure that the goal is something that you have control over. For example, "prevent an earthquake" is something totally out of your control, but "ensure that I am prepared for an earthquake" is something that you have control over.

4. Relevant

Goals also need to have meaning to you. If you just bought a new cellphone and your goal is to buy a new one, it's not a strong enough motivator for you to want to achieve it since you just got a new cellphone. To ensure that the goal is relevant, it needs to answer the following questions:

Does this seem worthwhile? Is this the right time? Does this match our other efforts/needs? Am I the right person to reach this goal?

5. Time-bound

Setting a date when you want to complete the goal ensures that you can prioritize your tasks and keep you focused on achieving your goal. In setting the time when you want to achieve the goal, you need to make sure that you give yourself enough time to actually achieve the goal.