Avoid these mistakes while setting your financial goals.


Setting a goal is the very first step of the journey to secure your financial future. When it comes to setting and pursuing our goal we all make a lot of mistakes which can affect our overall financial planning and state of financial well being. In this article, we will be discussing some of these mistakes that people tend to make while setting their financial goals.

1. Seeing your goal in isolation:

One of the biggest error in financial planning is not seeing your goals as linked to your other goals and your overall finances. For example, your goal to retire rich depends on how well disciplined your financial lifestyle is today. The better you budget, save and invest your money today has a direct impact on your retirement goal. 

Similarly understanding the conjunction between your various goal is also important. Prioritizing your goals that are crucial for your financial situation is important. 

If building an emergency fund to cover six months of income and emergencies is a goal, then you may have to cut back on other closer-term goals so that your savings can be better used to meet the more important target.

2. Not aligned Investment with the goal:

Not Linking your investments to the goals is another common error people tend to make. The investment option you choose to accumulate funds has to be well aligned with the features of the goal. 

You might be putting your short term goals at the risk. If you invest your money in equities and your principal gets eroded in the downturn of the market. Similarly, your long term goal may be underfunded if you ignore the time horizon available to take some risk to gain a better return and keep your savings in a low- return fixed income instrument like debt fund or bank FD.

3. Not defining the goal properly 

Mere stating the need and not defining the goal or not quantifying the goal is unlikely to get you the desired results. For example, if your goal is to accumulate money for the downpayment of the car you are aiming to buy in the next 2 years but you fail to quantify the amount required. Then you won't be having a target to work for and you can't hit a target unless you have one. 

Quantifying your goals also helps you to measure your progress and also allow you to take the corrective measures if there is any deviation or it can also allow you ease it up a bit on your tight budget if you have progression of more than that is required. 

4. Not being realistic in setting your goals. 

The most common mistake people make while setting the goals is to be unrealistic while setting goals. You can't work for the long term on something that seems to be unattainable. Hence, it is very important to set goals that match your current income level, fits your budget and at the same time suits your lifestyle. This doesn't mean you can't be optimist and ambitious regarding your goals. This simply means that you have to give such goals a longer time frame and work on them progressively. For example, if you aim to purchase a car worth 10 lakhs next year in income of Rs.30,000 per month then it won't be feasible to do so unless you take a heavy vehicle loan for that car. However, if you aim and plan to invest for it 3-4 years prior to it you might be able to purchase it with much ease and less burden on you.

5. Not reviewing your goals from time to time 

A lot of assumptions are made while setting the goals and while making personal finance decisions. The cost of meeting the goal is estimated based on the current cost and estimated inflation. The savings is based on the assumption of your income and ability to control expenses. The investments are selected based on the expected performance. If any of these assumptions change it leads to a change in your goal post.

A timely review will help you track your progress and enables you to take the corrective measures. You can make new assumptions based on the prevailing conditions and factors and have a clear and different view of your goals. Hence, it is very important to fix a time period to review your goals. 

Finally, before you include a goal in plan ask your self is it important to and if it is important why it is important to you. If the goal isn't important, you won't be able to commit to it for a long time. Arrange the goals and allocate your assets into those goals as per their importance, time frame and value. Don’t let setbacks in the journey to your goals take you off track. Keep your self updated about the outlook the market and securities, seek knowledge and always consult your financial advisor before setting, amending and prioritizing your goals to make them hasslefree.  

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