Financial Goal Setting

When we talk about personal finance, we will focus on the process of managing and planning personal financial activities like income generation, saving, spending, protection, and investing. The process of managing it can be formed in a financial plan or a budget (CFI Education, 2021). In this article, we're going to see the most important and common aspects you need to manage your finance.

The Areas of Personal Finance

There is at least five most important part of personal finance. And in this phase, we will explore each of them so that you have a more specific understanding of this topic. The five main areas include income, saving, spending, protection, and investing.

1. Income

This refers to a cash inflow that you receive and use to support your family and yourself. Income is the starting point to start to manage your financial planning process. Some common sources of income such as salaries, hourly wages, pensions, dividends, and bonuses. This cash can be used to invest, save, or spend which makes it the most essential thing in a personal finance roadmap.

2. Saving

The second point is saving which refers to excess cash used to retain for future spending or investing. If you have a surplus between what you earn and what you spend, then one can put their money towards investments or savings. We will later discuss what spending is.

Managing a saving is a critical area of managing personal finance. Forms of savings include money market securities, checking bank account, savings bank account, and physical cash. Most people have savings to manage the short-term difference between what they spend and earn and to manage their cash flow. Some of your savings can be put as investments so that you can earn a return. In this case, too many savings isn't a good idea, since savings won't give you a good return. Your money's value will also decrease inflation.

3. Spending

Spending here is all kinds of expenses a person has related to buying services or goods that are consumable. It is not included in investment. All spending is categorized into two credits or paid for by borrowing money and also cash or paid for with cash on hand. Most of what people earn is allocated to spending.

Common sources of spending include credit card payments, rent, taxes, mortgage payments, entertainment, food, and travel. The expenses you have will reduce the amount of cash you put into savings and investing. Be careful of a deficit. It is a condition when your expenses are bigger than your income. Thus, managing your expenses is as important as earning income. This results in good personal finance management.

4. Protection

Personal protection is used especially to guard you against an adverse or unforeseen event. The products include estate planning, health insurance, and life insurance. In this part, someone will sometimes seek professional help or from a Lionhood Financial coach to search for a good insurance company since things can become complicated. There are several analyses to conduct to know each individual's needs.

5. Investment

When investing, you expect a rate of return. In this case, you will purchase assets and hope their value will increase time by time, and not lose your money invest, or at least the money you invest getting back to you. Investment has risks, and you've got to realize that not all assets will bring a positive return. Here, we know the relationship between return and risk.

Several forms of investing are art, commodities, private companies, real estate, mutual funds, bonds, and stocks. Among all areas of personal finance, this last part is the most complicated one. This is also an area where people start to have a piece of professional advice, since they may find vast differences in reward and risk between various investments.

Types of Financial Goals

In investment strategy, the FINRA or Financial Industry Regulatory Authority divides the three types of financial goals as short-term which is less than 3 years, mid-term that is 3 to 10 years, and long-term that is more than 10 years. It is important to set up your financial goals not only just for investment. By choosing time frames, it will allow you to act more effectively, and having realistic and clear time frames for the financial goals will equip you better to plan your whole steps.

1. Short-term Goals

Seek a financial coach to help you set each of the goals based on the time frames. And the first one is short-term goals. These small and narrow-focused goals will help to achieve a longer-term aim. The short one means something you want to afford shortly like vacation or room renovation.

When choosing a goal, you have to go specific. Choose an exciting name that thrills your feelings (Borwick, 2021). This way is psychologically proven can encourage you to achieve the goals by visualizing what success and future look like. Apply this way to all plans you set for financial goals.

2. Mid-term Goals

The intermediate goals include saving that helps you provide a lifetime income, obtaining capital to start a business, or improving the credit score. In other words, for mid-term goals, you start to think about passive income. Ask your financial coach to help you set up the retirement plans. Your goals in this phase will be done between 3 to 10 years that is essential to reach your larger goals.

3. Long-term Goals

And for long-term goals, this is the time for you to pay off your mortgage and ensure financial security in retirement. The long-term phases sometimes include the mid-term and short-term goals. It is advisable to break down those large goals into a smaller or immediate ones.

Once you know how to set up your financial goals, you better write down it clearly to achieve them.

Research proves that people who write down their goals and revisit them regularly will have a bigger chance to reach them. But the fact is, writing down your financial goals will make it easy to track them and see the progress you get through.

It also keeps you to stay on track and prioritizes your budget well. Another benefit is that setting up financial goals will decrease your anxiety and stress especially when you face the real condition of your financial situation. Get help from your Lionhood Financial coach to set up and break down your goals.

References:

2015 to 2021 CFI Education Inc.

https://corporatefinanceinstitute.com/resources/knowledge/finance/personal-finance/

https://www.annuity.org/financial-literacy/financial-goals/

Setting Financial Goals

Written By : Kim Borwick, 2021