Let’s imagine a situation where you have won a lottery of 5 Crores. What will you do with that money? Just imagine it before moving forward and reading this article.

Most of us will think of buying a big home, or a big car, leaving our job, starting our own business, sending our kids to study abroad or going on a foreign vacation. These are going to be our immediate thoughts i.e. fulfill our dreams or achieve our goals. What if say that this is personal financial planning? But instead of a lottery, you will need to accumulate this 5 Crores by investing some amount every month and will have to define the time frame to achieve this 5 Crores.

Yes, this is personal financial planning i.e. defining and achieving your goals. Now, how you accumulate these 5 Crores is up to you. You win a lottery; you accumulate it slowly by investing your money or you accumulate it by selling your business etc. etc. (5 Crores is just an example, it may vary from person to person) but the first step is defining your goals.

Defining Goals

How do we define our goals – Let me give you an example

I want to be a wealthy person – Is it a goal? No, it is not a goal, it is a wish because the definition of wealthy is different for different people.

I want to accumulate 5 Crores to be a wealthy person- Is it a goal? No, it is not a complete goal, because you did not define the time frame to accumulate the amount. Some people may want to accumulate 5 Crores in a time frame of 15 years, others may want to achieve it in a time frame of 25 years.

Moving on, I want to accumulate 5 Crores (in today`s cost) in 10 years to be a wealthy person. Is it a goal? Yes, it is a goal now as the amount and time frame has been defined.

Whether the goal is achievable or not will depend on a lot of factors like inflations, existing investments, and monthly surplus to invest but this is the first step towards financial planning- defining your goals.

Let me give you another example of a goal

I want to purchase a house. Is it a goal? The answer is No.

I want to purchase a house worth 1 Crore. Is it a goal? The answer is No.

I want to purchase a house worth 1 Crore (in today`s cost) in 10 years. Is it a goal? The answer is Yes as the amount and time frame has been defined.

Now you know how to define a goal, the second step is to bifurcate the same into short, intermediate, and long-term goals.

Types of Financial Goals – Three Different Types

Normally, there are three different types of financial goals

Short Term Financial Goals

Financial goals which you want to achieve in the next 1-5 years are defined as short-term financial goals.

Intermediate Financial Goals

Any financial goal, which you want to achieve in between 5-10 years is intermediate financial goals.

Long-Term Financial Goals

Financial goals which are more than 10 years away are termed long-term financial goals. Though I personally consider long-term goals as 15 Years away.

Let me give you a few examples of goals list-

Personal Financial Goals List

Though the list of financial goals varies from person to person. Here is a list of personal financial goals which you can refer to and you can add your own goals.

1. Clearing Credit Card Debt – 6 Months – 80,000 - Short Term
2. Creating Emergency Fund – 1 Year – 5 Lakhs Short Term
3. Buying Vehicle – 2 Years- 5 Lakhs – Short Term
4. Going on Vacation – Recurring 2 Years – 2 Lakhs- Short Term
5. Going on foreign vacation – 6 years – 7 Lakhs- Intermediate Term
6. Buying a House – 7 Years – 80 Lakhs – Intermediate Term
7. Child 1 Graduation – 14 Years – 15 Lakhs – Long Term
8. Post-Graduation – Child 1– 18 Years – 30 Lakhs – Long Term
9. Child 2 Graduation – 17 Years – 15 Lakhs – Long Term
10. Post Graduation-Child 2 – 21 Years – 30 Lakhs – Long Term
11. Child 1 Marriage – 24 Years – 10 Lakhs – Long Term
12. Child 2 Marriage – 26 Years – 10 Lakhs – Long Term
13. Financial Freedom -15 Years – 3 Crores – Long Term
14. Retirement – 25 Years – 7 Crores – Long Term

After defining the goals, the second step is to define their priorities. Why do we need to define priority? Let me give explain it with an example-

Ajay can invest 50,000 per month to achieve all his goals (assuming the above goals list as Ajay`s goals) but the monthly investment required to achieve all the above goals is 2.50 Lakhs per month. What does Ajay need to do here? He needs to prioritize his goals. i.e. which goals are the most important ones and which ones can be prioritized later and which ones can be avoided completely?

If Ajay can invest 2.50 Lakhs per month, there would not be any need to prioritize the goals as he can achieve all by investing the required amount.

These are the basics of personal financial planning except 2-3 bumps that can hit your financial planning off the track.

Insurance in Personal Financial Planning

I will explain these bumps in detail in the other chapters but just writing 3-4 lines here to give you an idea.

1. What if the earning member of the family dies? How these goals would be achieved?
2. What if the earning member of the family becomes disabled?
3. What if there are large hospital expenses due to any family member`s illness?

To cover these unexpected events, insurance is purchased. Insurance policies are the pillars of any personal financial plan and without pillars, you can not build a solid structure.

Points to remember

1. Defining goals is the first step toward personal financial planning.
2. How to achieve these goals is the final step towards personal financial planning considering 4 scenarios
3. What if you die?
4. What if you live but are unable to work?
5. What if there is a dent in corpus due to health exigencies?
6. How to do proper asset allocation and rebalancing if everything goes as per plan.