Stage 2: Determine your goals

Updated by in Categories:Financial Planning, Tags:Tags

This is Stage 2: Develop a plan. Before reading this article, please take the time to read: 

After you knowing your current financial status, the next stage of financial planning is knowing your goals. A financial goal is anything that means something to you, has cost, and has a target date.

A goal means something to you

A goal must have a purpose that means something to you. It should bring you closer to be fully self-actualized, helping you become the best version of yourself.

Don’t worry if you are still figuring out what kind of person you are destined to become. Everyone is. And it is also not an easy question to answer. What is more important is that every time that you set out a goal, you should find the time to check if it is in line with what you want to happen in your life in both your present and foreseeable future situations.

Any purposeful goal can be broken down to three things:

  • what you want to do
  • what you don’t want to do
  • what you want to buy

What you want to do

The first type of goal is anything that you like doing. Your list might include:

  1. Start doing a business
  2. Retire early
  3. Self-publish a book
  4. Have enough money to send yourself to school
  5. Have enough money to send your children to college
  6. Have enough money to do home repairs
  7. Have a holiday every year
  8. Attend a concert of a favorite band or musical act
  9. Watch live theatrical performance
  10. Repay loans
  11. Pay home loan (from Pag-ibig)
  12. Pay for child-support

What you don’t want to do

The second type of goal is anything that you don’t like doing:

  1. You don’t want to be penniless in emergency situations.
  2. You don’t want to rely on your family when you lose your job.
  3. You don’t want to rely on your family when you are ill or permanently disabled.
  4. You don’t want to leave your family behind poor and/or in debt.
  5. You don’t want to be working for the rest of your active life.

What you want to buy

The last type of goal is one that we are all familiar of. These are things that you want to acquire, and this might include:

  1. A house
  2. A vehicle
  3. Want to own and run a food business
  4. Investment property to earn additional income
  5. Acquire collectibles, artworks
  6. Buy jewelry, high fashion / haute couture
  7. Gadgets, home entertainment system
  8. Laptop, computer
  9. Camera

 

A goal has cost

A financial goal must have a cost. This explains why gaining friends is not a financial goal, because friendship should be freely given, received, and shared. So is a loving relationship with a spouse or with your children, etc. However, throwing a dinner party or going on a vacation with friends is a goal. And so is going to cinemas to catch a premiere showing of a long-anticipated sequel with your family.

So how is cost determined? This is where it is going to get tricky. The goals that can be met right away are the easiest to estimate. All you have to do is to go window-shopping, go online and search for price tag of similar items.

The same cannot be said of those that are going to occur later. The further a goal is set in the future, the harder it is to estimate its cost. Having said that, don’t worry if you don’t have the exact figure. Attempt to come up with the closest approximate. It is fine that you take many assumptions about your future needs, such as the changes in lifestyle like having a family, rate of taxes, inflation, your job, etc.

A goal’s cost is its first test of how realistic and achievable it is. If it is too expensive that you need to sell a leg and an arm, you might need to step back and calculate if it is something worth having.

How much a goal cost is also a factor when you are going to the next stage of financial planning, which is developing a plan. It pushes you take a look at the many, at times competing, goals that you have defined and prioritize them in terms of how much they cost. You can then think of a way of achieving them either all at once or per item, depending on your ability to pay.

A goal is time-bound

A financial goal is tied with time. And it is always set in the future. It is a snapshot of you at a later time. It can be something that you want to happen in a matter of weeks or months. Or you might need to wait for years before you are able to do, afford not to do, or buy something.

Always remember that if a financial goal is not set to happen some time in the future, it is wishful thinking. It remains to be just a dream, imaginary and unrealizable.

Time is the second test of how achievable your goal is. If it takes you a thousand years to be a billionaire, you might need to be more realistic with your aspirations. Interestingly, you might challenge yourself to become one in your lifetime by launching a successful tech start-up or be an astute investor.

So take the time to prioritize your goals according to the length of time it takes you to achieve them, such as:

  • Short-term. A short-term goal is anything that takes you three to six-months to achieve.
  • Medium-term. A medium-term goal is anything that takes you half a year to around three years.
  • Long-term. A long-term goal is anything that takes longer than three years.

No one can see the future with certainty. Just like cost, it is fine that you make assumptions.

Next steps

Once you have determined your goals, it is time to developing a plan. This is where you will analyze how your current financial status will meet your goals.