How to craft the perfect financial plan for short, medium and long term goals

Ever since you were a child, everyone around you has always encouraged you to set goals. Goals like topping your class in school, making it to the soccer team, getting into the college of your dreams, etc. Setting goals is important because it gives you clarity on where you are headed and how to get there. Here’s a simple guide on how to craft a financial plan for your short-term, medium-term, and long-term goals.

First, let us try and understand the difference between long, medium and short-term financial goals.

Take a notepad or a laptop and jot down all your goals. Include the things you would need money for. It could be something as simple as your rent each month or the car that you want to buy. Ask yourself questions like, do you want to go on a world tour? Are you planning to buy a house? Once you have put all your wants to paper, ascertain the attainable time for each of these wants. Simplistically speaking, immediate expenses are your short-term goals, not so immediate expenses are your medium-term goals, while goals that are set many years in the future are your long-term goals. If you are still not sure, try and follow this list:

Short-Term Financial Goals

Short-term financial goals are the goals that you can accomplish in 6 months to a year. For example:

1. Rent payments
2. Clearing credit card and debit card bills
3. Wanting to buy a new phone

Medium-Term Financial Goals

Medium-term financial goals are the goals that you can accomplish in the next 5 or 7 years. For example:

1. Buying a/another car
2. Buying a/another house
3. Paying off bigger debt like student and car loans

Long-Term Financial Goals

Long-term financial goals are the goals that you set out to achieve throughout your life. These can take years to fulfill. For example:

1. Setting up a college fund
2. Saving for retirement

Now that you have categorized your goals, let’s see how you can adopt a goal-based financial planning strategy to accomplish them.

Financial Planning for Short-Term Financial Goals

1. Draft a spending plan

Writing down a list of your goals is a good way of making them more achievable. Very often, you will find your medium-term financial goals, taking a back seat because of your short-term financial goals. For example, buying a new gadget ends up messing with your house budget. What helps to overcome these little setbacks in accomplishing your goals, is to have a spending plan in place. Don’t think of it as a rigid monthly budget, but merely as a guide to managing your short-term financial goals.

2. Make an emergency fund

Having an emergency fund is very important to account for unforeseen circumstances in the future. Try and set a fixed amount from your income that goes into your emergency fund every month. Have an emergency fund that can keep you afloat for at least 6 months. Your short-term financial goals should not suffer in case you quit or lose your job. Keep an emergency fund that is easily accessible to you. Having a savings account is ideal as you can deposit or withdraw funds anytime you want.

3. Get rid of credit card debt

Credit cards are quite convenient in accomplishing short-term financial goals, but can also be addictive. They can interfere with your financial situation and give you a false sense of financial security. Credit card debts are calculated at very high-interest rates. It is good to cut your dependency on them and make sure to pay off all your debt at the earliest. Instead, you can use the interest money for your short-term goals.

4. Consult a financial advisor

Many experts believe that if your short-term financial goals are in order, then your medium-term and long-term financial goals will also be achievable. It is good to consult a financial advisor and devise ways to have goal-based financial planning in place, without having to make a lot of sacrifices and compromises on your current lifestyle. Calculating how much you should be saving is a good way to start.

Financial Planning for Medium-Term Financial Goals

1. Plan well

When you make mid-term financial goals, consider all your goals in detail. Do you really need a car or a house? If you already own a house, should you renovate it instead of buying a new one? Making sure you have detailed medium-term plans, helps in making the right cuts in your short-term financial goals.

2. Making small sacrifices

Want to buy a car in the next three years, but aren’t sure if you can afford it? Sometimes, it may seem like you don’t have the resources to fulfill your medium-term financial goals. Don’t worry, Following goal-based financial planning can help you here. You don’t have to always drastically cut down your monthly spending to achieve a bigger goal. Making small changes like reducing the number of times you eat out in a month or reducing your trips to the shopping mall, can help you in a big way.

3. Create separate accounts

Goal-based financial planning is very helpful in understanding individual requirements of accomplishing each goal. Try setting up different accounts for different goals. If you have an impending expenditure coming your way, you can consider saving in a brokerage account. You can have different money market accounts for your house goals as well as your next vacation.

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Financial Planning for Long-Term Financial Goals

1. Set the right target

Retirement may seem far away in the future, but it can only be achieved if you have the right targets in mind. There is no one figure that fits all, but you should ascertain your future requirements depending on your current lifestyle, the size of your family, and your future medical needs. Having a set target in mind will help you save and invest correctly.

2. Pick the correct investment instruments

Depending on whether you are saving for retirement or saving up for a child’s higher education, you should invest in the right accounts. 401 (k) accounts and individual retirement accounts (IRAs) are common choices for people when it comes to retirement savings. On the other hand, 529 education plans are popular for covering college costs. Picking the right account will ensure that you reap the maximum benefits from your investment. They will also reduce your tax liabilities and ward off unnecessary penalties as long as the funds are used for the designated purpose.

3. Do not undermine inflation

When saving for your long-term goals, it is essential to always account for inflation. The cost of your current lifestyle will not be the same five, ten, or twenty years from now. It is vital to invest in healthcare retirement plans that counter the ill effects of inflation over time.

How to prioritize your goals

Every individual can have a different set of priorities. Some people may be more inclined towards living in the present and spending their money on short-term goals like buying a new phone or traveling the world. Others can have a more far-fetched approach and contribute every penny towards their retirement fund. However, prioritizing is all about finding the right balance. You need to determine your current and future needs and place them down in order of necessity. This will help you focus on what is more important at a given time.

As a rule of thumb, you should also make sure to save before your spend. This implies to first contribute a portion of your salary to your savings or retirement accounts and then covering your monthly expenses. Another crucial aspect to pay attention to is to cut out your debt as soon as you can, so you do not lose your money on paying high interest.

To sum it up

Goal-based financial planning can help you lead your ideal lifestyle without having to compromise or sacrifice all the time. It is as simple as making a list and then sticking to it. Simple things like not depending a lot on your credit card, or not spending excessively, can go a long way. Before making any purchasing decisions, ask yourself, “Do I need to spend here?”, “Does this hold any value to me?” This can help you in making the right decisions.

Still have concerns on how to craft a goal-based financial planning strategy for yourself? Get in touch with financial advisors and take advantage of their knowledge and expertise.