The objective of financial planning begins with identifying your personal requirements and this process will help you to establish realistic financial goals. Every individual has different objectives in life and even the same individual will have different financial prereogatives at different stages of his life.
When we are young, our parents provided much of the financial resources to put us through school. It is later when we are young adults that we start to make some of our own money. Financial independence will be an important financial objective at this stage. Even when one becomes more stable with his career and therefore his income stream, he will face the financial challenges of providing for his family. By the time one reaches his forties, he will most likely have peaked in his earning capabilities and financial considerations at this stage will be to make sure there are enough economic resources for retirement needs.
It is important that such goals be stated in monetary terms because utility, which measures the amount of satisfaction that one receives from each dollar spent, is very important to the process of financial planning. It is the is satisfaction rather than the cost that causes an individual to choose an item over anther. It is also important that goals be as speicfic as possible. An ambiguous goal like wanting to start a savings program is too general and often leads to frustration.
One should clearly state what one wants to do and why. A specific goal would be to put aside, say 15 percent of one's monthly income for the next two years to save enough for a down payment for a new car.
Naturally, goals must be realistic as well. This is important since goals form the foundation of a financial plan. If the goals are set too high, they are mere castles in the air and not realising one's goals is likely to cause one to abandon the entire plan. On the other hand, if the goals are set too low, one may not be able to accumulate enough resouces to attain one's material objectives.
Finally, it is important that goals are ranked in terms of their respective priority and a definite target time frame is set to achieve them. It is importan to note that our priorities change and some goals become more important as we progress in life. Thus one will need to have a personal set of goals that is meaningful at each stage in life.
When we are young, our parents provided much of the financial resources to put us through school. It is later when we are young adults that we start to make some of our own money. Financial independence will be an important financial objective at this stage. Even when one becomes more stable with his career and therefore his income stream, he will face the financial challenges of providing for his family. By the time one reaches his forties, he will most likely have peaked in his earning capabilities and financial considerations at this stage will be to make sure there are enough economic resources for retirement needs.
It is important that such goals be stated in monetary terms because utility, which measures the amount of satisfaction that one receives from each dollar spent, is very important to the process of financial planning. It is the is satisfaction rather than the cost that causes an individual to choose an item over anther. It is also important that goals be as speicfic as possible. An ambiguous goal like wanting to start a savings program is too general and often leads to frustration.
One should clearly state what one wants to do and why. A specific goal would be to put aside, say 15 percent of one's monthly income for the next two years to save enough for a down payment for a new car.
Naturally, goals must be realistic as well. This is important since goals form the foundation of a financial plan. If the goals are set too high, they are mere castles in the air and not realising one's goals is likely to cause one to abandon the entire plan. On the other hand, if the goals are set too low, one may not be able to accumulate enough resouces to attain one's material objectives.
Finally, it is important that goals are ranked in terms of their respective priority and a definite target time frame is set to achieve them. It is importan to note that our priorities change and some goals become more important as we progress in life. Thus one will need to have a personal set of goals that is meaningful at each stage in life.
