We return to planning as the cornerstone of good financial education
and an excellent habit to always be in
control of one’s finances. Setting goals, in life as well as in personal finances, is the right key to avoid making poor choices or investments that could lead to over-indebtedness.
How then to do it? Here are some practical tips for choosing the right goals and pursuing them.
First of all, it must be said that there are short-term goals, such as buying a car or taking a trip; others are long-term, such as retirement or buying a house.
Some planning experts suggest some steps for setting investment goals.
Step one: make the list of goals
The first step is to make a list of your goals and the time frame for achieving them.
They can be grouped into three bands: short-term goals (to be achieved in five years or less), medium-term goals (five to 15 years from now) and long-term goals (15 years or more).
It is important to specify the time frame and date by which you hope to achieve them. For example, if you have two children who are going to college, make two separate lists. Debt should not be forgotten on the list of financial priorities, whether it is a mortgage or financing.
Step two: quantify the goals
Fundamental is the cost estimate of each objective. For short- and even some medium-term ones, it should be easy, but for long-term ones, such as retirement, it is more difficult.
Step three: set SMART goals
Goals must be Specific, Measurable, Adaptable, Realistic, and Temporally Defined (SMART).
- Specifics: well-defined, clear and unambiguous.
- Measurable: able to measure progress toward the goal.
- Adaptable: adjustable and correctable over time.
- Realistic: within reach and feasible with respect to your goal.
- Temporally defined: with a clear time horizon, including a start date and finish line.
Step four: set priorities
We would all like to prioritize our desires, but we need to take into consideration what makes financial sense and, as a result, will allow for the highest return on investment.
Here is an example of a priority list:
- Repay debts/have an emergency fund for contingencies.
- Saving for retirement.
- Saving to pay for their children’s college/education.
- Other short- and medium-term goals (that are appropriate).
Once goals and priorities are set, managing one’s finances will become an easier and more peaceful activity.
Author: Morningstar Source: News Trend Online
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Learn about other financial best practices
#25 | Be conscious of what you spend
Payment awareness is critical. Very often you buy a lot of things using installments or financing, so you have to be aware of what you are paying month after month.
Good financial advice #24 | Learn to say no
Have you ever found yourself self-imposed a spending limit beyond which not to go, so you can manage to save money at the end of the month? It is certainly not easy to make all the accounts add up.
Perhaps it may help to start using a magic word: no.
Good financial advice #23 | Buy without credit cards
The credit card has the virtue of making people pay for things in a deferred manner, but so it is not possible to have full control over purchases and thus monthly or weekly outgoings. If you want to be in control of your spending at all times, make payments and purchases with your debit card.
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