How to Set Achievable Financial Goals And Plan to Achieve Them

Feb 20, 2023 / Reading Time: Approx. 8 mins

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Are you putting in a lot of effort to make smart financial decisions but still can't seem to get them? Or do you feel like you are working tirelessly but do not have much to show for it financially at the end of each month? While economic factors like inflation and recession can make things challenging, if you do not have specific financial goals in mind, it can be difficult to make progress even during stable times.

To start making progress with your finances, it is crucial to establish achievable financial goals. Many individuals get intimidated when they hear of financial goals and financial planning. But you don't have to; the process is quite simple. In this article, I'll guide you through setting smart financial goals step by step and creating a plan to reach them within your timeframe.

Setting financial goals and creating a plan to reach them can be a challenging but fulfilling task. Having clear financial goals can help you take control of your finances and improve your overall financial well-being. However, it can be overwhelming to know where to start and how to create a plan that works for you.

At PersonalFN, we believe that with the right approach to setting S.M.A.R.T. financial goals and investing, you can achieve your goals sooner than you think.

However, before we proceed, it is important to have a clear understanding of your financial situation. While it is great to have big dreams, it is crucial to distinguish between your goals and your dreams. Everyone wants to be wealthy, live extravagantly, and purchase everything they desire without any financial worry. However, you need to understand that being wealthy and living extravagantly are dreams, not financial goals.

How to Set Achievable Financial Goals And Plan to Achieve Them
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How to set financial goals?

Take note that defining your financial goals is the initial step in achieving them. If this step is not done correctly, it is highly unlikely that your goals will be accomplished within the desired timeframe.

The S.M.A.R.T. framework is the best method for setting and achieving personal financial goals. By breaking down each letter of the acronym, you can ensure that your financial goals are well-defined and effective in helping you achieve your financial aspirations.

  • Specific - Your financial goals should be specific and clear, with a well-defined outcome that you want to achieve. This could be a specific amount of money you want to save, a specific investment you want to make, or a specific item you want to purchase.

  • Measurable - Your goal should be measurable so that you can track your progress and determine when you have achieved it. This could be in terms of a specific amount or a percentage of your income.

  • Achievable - Your financial goal should be achievable, based on your current financial situation and resources. This means avoiding unrealistic expectations and instead setting achievable and attainable goals that you can work towards.

  • Realistic - Your financial goal should also be realistic, considering your current financial situation and your ability to save, invest, or earn more money. This will help you stay motivated and on track towards achieving your financial goals.

  • Time-bound - Finally, your financial goal should have a time frame for accomplishment. This will help you stay accountable and motivated, as well as provide a sense of urgency and a deadline for completing your goal.

Following the S.M.A.R.T. framework can increase your chances of success in achieving your financial goals and ensure that you are taking the right steps towards a better financial future.

When setting your S.M.A.R.T. financial goals, you should involve your spouse in the process, even if they do not earn an income. This is because your spouse may have valuable insights and perspectives that could impact your financial goals. Having shared goals with your spouse, such as taking a dream vacation and buying a new house, can create a sense of unity and help avoid conflicts of interest in the future. By including your spouse in the goal-setting process, you can ensure that everyone is on the same page and working towards common financial objectives.


How to create a plan to achieve your SMART financial goals?

Now that you know how to set SMART financial goals, you should not waste time and start investing. Even if some financial goals, such as retirement or your child's marriage, may seem far off in the future, it is still important to plan and set goals for these events. The advantage of setting goals in advance is that you are given the gift of time. The more time you have before a goal is due, the less you have to save each month, and the greater the benefits of compounding will be. This highlights the importance of planning and saving early for your long-term financial goals.

We Indians, as a country, prefer investing in fixed-income products like bank fixed deposits and bonds, mainly because these financial instruments are considered less risky and are easy to understand. However, it is important to understand that no investment is risk-free, and for every return you seek, there is a certain level of risk associated with it.

While fixed-income products like bank fixed deposits offer guaranteed returns and carry low risk, they generally yield lower returns than the inflation rate. Hence, it does not make sense to invest in such investment avenues for the long term. On the other hand, while market-linked financial instruments like stocks and equity mutual funds have the potential to generate inflation-adjusted returns and create wealth in the long term, they carry higher risks. However, in order to diversify the risk, you can consider allocating a small portion of your investment to safer financial instruments.

Hence, Mutual funds can be a great option for many investors looking to achieve their financial goals. Mutual fund investments provide a significant benefit through diversification. By investing in a variety of stocks, bonds, and other securities, investors can reduce their exposure to any single security and spread their risk across a range of assets. This helps to mitigate the impact of market volatility and provides a more stable investment experience.

In addition, mutual funds are managed by professionals who have the expertise and resources to conduct thorough research and make informed investment decisions. This can provide peace of mind for investors who may not have the time or knowledge to manage their investments themselves.

However, before choosing the best mutual fund schemes for your financial goals, it is important to carefully consider your investment objectives, risk appetite, and other factors to ensure they are the right choice for you.

Similar to different asset classes, each category of mutual fund scheme comes with its own level of risk and has a distinct place on the risk-reward spectrum.

Source: PersonalFN Research

As shown in the above pyramid, large-cap funds are relatively stable and carry lower risk compared to their peers, but at the same time, sacrifice the return potential. Similarly, liquid funds carry low risk, whereas small and mid-cap funds are at the higher end of the risk-return spectrum.

When selecting the best-suited mutual funds, it is crucial to analyse several qualitative and quantitative factors. The qualitative factors include portfolio quality, fund management style, fund manager's experience, funds-to-fund manager ratio, portfolio ratios and concentration, turnover ratio, investment systems and processes at the fund house, assets under management, and so on. In comparison, the quantitative parameters include the past performance of the scheme and risk-adjusted returns, among others. Apart from these factors, you should also consider personal factors, such as your age, risk profile, timeframe to achieve the goal, etc.

At PersonalFN, we understand that not everyone has the expertise to choose the best-suited mutual fund schemes. Often, the lack of market knowledge and fear of market volatility discourage people from investing in market-linked financial instruments. However, with PersonalFN's SMART Fund Explorer, investing in mutual funds can now be made easier and smarter.

To use the SMART Fund Explorer, simply state your S.M.A.R.T financial goals, such as buying a house, saving for your child's education, or planning for retirement. Determine the time frame for achieving these goals, and enter the amount required in today's terms, as well as the lumpsum and/or SIP investment you can afford to make. Then, simply tap on "Show Me My SMART Investment Plan". The tool will present you with tailored investment plans based on your financial goals and investment preferences.

As you scroll down, you will see two recommended mutual fund investment plans (Plan A and Plan B). These plans display the recommended fund categories to invest in, the suggested asset allocation percentage, estimated returns for each category, and the weighted annual return contribution. You can select a plan based on your personal risk tolerance.

By signing up for PersonalFN's SMART Fund Explorer, you will have immediate access to a list of the best-suited mutual fund schemes as determined by your chosen plan. This list, which has been carefully selected and recommended by PersonalFN's research team, provides a smart starting point for your mutual fund investment journey.

Start investing sensibly today to accomplish your envisioned financial goals!


KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

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