How to Set a Savings Goal and Effective ways to Acheive it.

When life's at its best, and we essentially jot down our priorities, money management isn't likely to make the cut. And that's the reality for most of us. A recent survey reveals that 50% of Indians save less than 20% of their income. We tend to neglect the necessity of prioritizing our finances while emphasizing other elements of our everyday lives, such as our work or personal life. But setting a savings goal can help us make sure we are putting aside enough money to reach our financial goals.

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We get it; you have life plans - personal commitments that you want to achieve, things you want to own, and milestones you want to reach at a certain stage in life. And most (if not all) of these are only attainable provided you have a finite amount of money that is financially well-planned to get you faster to your goals. 

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What exactly is financial planning?

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Financial planning is a process that offers you a framework for attaining your life objectives in a systematic and planned way by minimizing shocks and surprises. It aims to evaluate capital requirements, formulate financial strategies, and ensure that finite financial resources are exploited in the best feasible way.

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Financial planning may seem like a difficult part to tread on if you're beginning to prioritize where your money goes and how it's benefiting you. But, a couple of months and years into it, you'll realize that it pays to save money for good. 

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Once you embrace the concept of financial management, navigating the roadmap of your life and ticking off all your financial milestones becomes relatively easy.

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Why is creating a finance roadmap important?

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All of us work hard at our jobs, doing what we do for essentially two things - to have food on our table and to be able to fulfill many financial objectives for ourselves and our families. These could be as simple as buying a new smartphone to a hefty responsibility such as getting your first home. 

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Until you have a money plant that blooms money at your home, there's a high chance that you'll need a large chunk of cash in the above circumstances, and perhaps lots of it. However, from where will it originate? Savings are a must!

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Perhaps the most vital factor of why people save in the first place is to escape any financial traps. Think about it like this - you've exhausted all your money near the month-end and need urgent dental care. You tend to swipe your credit card, which acts as a last-minute rescue, and when payday comes, you procrastinate your credit card dues letting credit companies levy heavy interest rates on your amount. So, now you're in this debt trap that you could have avoided if you had an emergency savings fund to fall back on. 

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This brings us to the next important aspect - methodical savings can lead to financial success over time. Your financial goals can be met on schedule. To begin with, keep at least 10% of your monthly salary in a savings account. That's how easy it can be! 

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Once you're ready to take the next step, move your money from a savings account that bears little return to smart investments such as mutual funds, SIP, bonds, commercial paper, and certificates of deposit. The idea is not just to save what you have at present but also to make your money grow in the longer run.

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Why must you prioritize your savings goals?

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Prioritizing savings goals can go a long way in making sure you live a comfortable life and that your family doesn't suffer. It will enable you to create contingencies in terms of emergencies or significant expenses while also using that money to enjoy things you've always wanted to own.

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Here's why you must prioritize your savings goals:

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Keep your emotions in check

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When the markets are volatile, it's easy to become overwhelmed, and many of us make the great error of making premature judgments. Amidst uncertainty, it is possible to prioritize our money to lessen the impact of dread and panic. 

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Becoming aware of the financial ramifications of your activities and remaining dedicated to your investments is made easier in turbulent times when you have already prepared and invested towards an end goal.

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Prepare for uncertainty

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Inflation eats away a considerable portion of your discretionary income. It's important to focus on avoiding inflation and accumulating enough money to sustain a good standard of living in the future. 

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You can accomplish this through careful financial planning and assets such as mutual funds to increase your net worth. To safeguard yourself and your possessions, try building a diversified investment portfolio from an early stage.

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Maintain a good lifestyle

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If you don't have a good financial strat, you run the risk of becoming overwhelmed and upset by unforeseen circumstances. Setting your money in order will help you avoid this situation. 

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With an emergency fund, you can ensure that you'll have enough money on hand in an emergency. Thanks to this option, you don't have to transfer funds from your principal aims to meet gaps in the event of eventualities.

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The pandemic has been the biggest eye-opener for most of us in realizing that our steady source of income can come to a sudden halt owing to adversities such as job loss during an economic downfall. In times like these, many of us realize the importance of creating a savings fund that can negate any financial crisis that comes our way.

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And creating savings is essentially the first step in money management. Being able to save money and keeping it aside for future use is the start of how you can attain financial security. 

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How to plan for savings goals

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Emergencies

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Most of the time, putting money aside for three to six months' worth of expenses should be your first goal. A money market or certificate of deposit will pay you greater interest as soon as you have the cash to put into one. This money is designated as an "emergency fund"; thus, it should be accessible at all times.

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In the case of a significant financial setback, such as a job loss or an unanticipated medical bill, you should dip into your emergency fund. Make a separate budget for house and automobile maintenance items, and put that money away outside of your emergency fund. Self-employed people and those in single-earner households should have at least a year's worth of costs stashed up. If you lose your job, you'll have more money to fall back on.

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Personal goals

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You should establish your emergency fund and retirement savings first before you begin saving for goals like a down payment on a home, new vehicles, and trips. You will save money on interest and expand more avenues of income if you save up for these things in advance. Monitor each of these savings to see how much progress you've made toward achieving your objectives.

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When it comes to setting priorities for these objectives, it's important to consider your current life position and stage. Assuming you want to purchase a home in the next five years, setting up some money aside for this goal should be put first. 

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Investments

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Investing in the share market requires a long-term perspective. However, it's possible to save more money every month and begin investing it in the share market if you are genuinely committed to generating wealth.

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Look for investments that have a proven track record of success. Investing in mutual funds, for example, allows investors to diversify their risk over a large number of stocks. To acquire mutual funds without a large initial payment, several brokerage firms enable you to make automatic monthly installments.

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It's crucial to have a plan in place for the money you're working so hard to accumulate. For example, you may be able to assist your children in paying for college or buying a vacation house. Alternatively, these funds can contribute to you leaving a substantial legacy or inheritance to your kids.

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To conclude

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Every person has somewhat different objectives, but retirement and an emergency fund will always appear first on every individual's list. After that, you'll be able to focus on other goals like accumulating wealth. 

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To segregate your priorities, you need to know the difference between "needs" and "wants." The most crucial factor is the importance of your objective goal and its proximity to completion when prioritizing. Try to re-evaluate your financial goals at least once every two years to check if the financial plans you've laid out are still in sync with the goal you'd like to achieve. 

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Depending on the time it takes to reach your financial objective, you can classify it as short-, medium-, or long-term. Prioritizing helps you allocate your current resources and direct your future efforts toward a more critical objective. 

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Don't fall for lame ways like creating an excel sheet or spreadsheet to keep track of your investment progress because that rarely works. Use apps like Jar that can come in handy to showcase your investment portfolio on one screen and give you detailed progress of your saved money.  

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Start your saving journey today.

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