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SMART Goals & Investing

Financial planning starts only when an individual defines his or her financial goals. Like professional and personal goals, an individual also needs to identify his / her financial goals too.

SMART Goals & Investing
SMART Goals & Investing

Financial planning starts only when an individual defines his or her financial goals. Like professional and personal goals, an individual also needs to identify his / her financial goals too. He/she needs to list down the priorities with respect to his / her financial requirements in the future.

Financial goals are derived from financial dreams and desires. For example, young parents may have a desire to secure their 10-year-old daughter’s future w.r.t her education and marriage. A software engineer may desire to start his own company five years from now. A 40-year-old businessman may wish to retire at the age of 60 and desire to maintain his current lifestyle post his retirement. These are all examples of human desires, originating from needs and wants.

Let us look at the key points which help an individual in setting his / her goals.

Goals should be SPECIFIC. Financial goals must specify the end result of the whole process. The individual will accordingly distinguish the amount of investment required and the pattern of investment (lump sum or periodic),  the time period available and the purpose to be fulfilled therefrom. For example, a general goal would be ‘I want to get fit’. A more specific goal would be ‘I want to obtain a gym membership at my local community center and work out four days a week to lose 5 kg weight in 6 months’ time’. Always remember, goals that are specific have a significantly greater chance of being accomplished.

Goals should be MEASURABLE. Goals must be so defined that there are clear criteria for measuring progress. If no criteria are specified, assessing your progress will become difficult to track and whether you are on track to reach your goal well in time.  For example, building on the specific goal above, I want to obtain a gym membership at my local community center and work out four days a week to lose 5 kg weight. Every week, I will aim to lose 200 grams of weight.

Goals should be ATTAINABLE. Achieving goals become more probable if they are attainable. It then helps you figure out ways to realize that goal and also work passionately towards it. Always remember that the achievability of a goal should be stretched to make you feel challenged, but defined well enough that you can actually achieve it.

Goals should be REALISTIC. The financial goals should be realistically determined so that they remain attainable. For example, a person earning Rs 50,000 per month and having basic living expenses of Rs 30,000 per month cannot plan to save 50% of his salary currently.

Goals should be TIME SPECIFIC. Every goal should specify the target date, indicating the time when the goal is intended to be fulfilled. If the goal is not time-constrained, there will be no sense of urgency and therefore, less motivation to achieve the goal. Also, the target date helps one distinguish between long-term, medium-term, and short-term goals and plan the investments accordingly.

Often, individuals or businesses will set themselves up for failure by setting general and unrealistic goals. Such goals being vague, tend to have no sense of direction. SMART goals, instead, set you up for success by making goals specific, measurable, achievable, realistic, and timely. Thus, the SMART method helps push you further, gives you a sense of direction, and helps you organize and reach your goals well in time.

Always remember that personal financial planning is a lifelong process. Your time horizon is as long as it can be, until the very end of your life, and during that time your circumstances are bound to change in predictable and unpredictable ways. A financial plan thus has to be re-evaluated, adjusted, and readjusted. It has to be flexible enough to be responsive to unanticipated needs and desires, robust enough to advance specific goals, and all the while be able to protect from unforeseeable risks.

You have to be SMART as easy days are over!

Dr Swati Dhawan
Dr Swati Dhawan

A SRCC & FMS alumni, Dr. Swati Dhawan has a rich teaching & training experience of more than 17 years in the area of Accounting and Finance with institutes of repute like IIM Rohtak, IIM Raipur, IIM Sirmaur, Faculty of Management Studies, Shri Ram College of Commerce, IMT Ghaziabad, TERI University, etc. Also, she has been an academic consultant & corporate trainer in management development programmes at GAIL and Alchemist. Her book on Merchant Banking & Financial Services has been published by McGraw Hill.

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