A financial goal is a target or milestone set by an individual that she would wish to accomplish within a certain time frame. However, in reality, a number of items such as uncertainty, socioeconomic volatilities, and unexplained life events can become one of the reasons which can prevent an individual from accomplishing his/her financial goals.
Life uncertainties cannot be accounted for in a financial plan or a financial goal as we don’t know which type of life events an individual may have to face in the near future.
So, how does one plan his or her financial goals and accomplish them amidst life’s uncertainties?
Keep some flexibility in goals and expect uncertainty
Being rigid or making very fixed goals would be like a horse wearing blinders and this can lead to focusing on one particular metric so much that you forget everything else in life which can lead to adverse effects.
Our minds work on a fixed set of numbers like “I want to make 1 lakh more this year”.
Instead one should make a goal that “I would save approx. XX% more this year than the last year”.
When you set fixed goals, you create a psychological tunnel that can make you focus on that particular metric and lose yourself completely to achieve it while ignoring other aspects of your life.
As we examine flexibility as a key component of achieving long-term financial success and building an individual’s retirement plan, the following items could be focused on:
Protecting Savings from Income and Cash flow changes
Very few of us can predict future incomes accurately. Similarly sudden expenses also can happen without notice. However, as we want to incorporate flexibility in our investments and retirement planning, you must commit to a savings plan and invest accordingly. Saving every month towards an emergency fund will help you to weather volatility in income and expenses without impacting your savings ratio. Use that emergency corpus but don’t move away from committed savings.
Tackling Market Volatility via diversification
Markets are volatile on account of the ever-changing micro and macro-economic situation. Volatility is experienced in all types of markets like Equity, Debt, Commodities, real estate, and other asset classes. Experienced investors know that to minimize the volatility of the overall portfolio one has to diversify one’s portfolio across different asset classes that are less correlated to each other. Evaluate investing in a balance of asset classes—across international and domestic assets, across sectors, and strategies to develop a portfolio that can tackle volatility.
Covering changes in Health or Premature death via insurance
As the old saying goes “Health is Wealth”. Health is one of the most important metrics for an individual’s life, as good health allows an individual to be more productive which can help maximize his or her income, thereby helping him/her to increase savings leading to a comfortable financial life. However, poor health can lead to decreased productivity and huge expenses, hampering finances. In addition, a premature death event due to ill health conditions or otherwise can lead to economic devastation in the family.
Appropriate life and health insurance coverage can help an individual tackle cases of hospitalization, accidental disabilities, or even premature death. Securing proper insurance can protects an individual’s ability to earn, with some covers providing a regular income stream in the event of disability. Pure-term life covers don’t cost much but offer much-needed financial protection to heirs in the event of a death. Use these insurances to tackle these uncertainties.
It’s up to you how you determine which goals should be specific and fixed & which goals can be flexible, as this will help you not only achieve your goals but also make you happier in the long run.
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