Read the Tagalog Version of this article: Ang Pagpa-plano ng Iyong Financial Life Goals
As I mentioned previously, savings are divided into 3: Emergency Fund , Short Term Goals and Long Term Goals. We already discussed about how to create our emergency fund. This time, we will talk about your short term and long term goals which is still part of the budget.
Actually, in the world of Finance, the short-term and long-term goals are more popularly known as Financial Life Goals. What and how can we determine this Financial Life Goals? And where and how do we begin?
The first step?…you dream. Yes, dream as in ASPIRATION. I never meant for you to sleep and dream. Sleeping dreams is different from dreams of aspiration. There are different types of dreams that we can have such as:
- WEALTH DREAMS - Dreams that are economical like having your own business.
- HOME & FAMILY DREAMS - Dreams for your family like having your own home.
- HEALTH DREAMS - Dreams for your health like gaining weight if you are thin or reducing your weight if you are fat.
- SELF-IMPROVEMENT DREAMS - Dreams for your personal development like going to a country in Europe to experience and learn about their culture.
- PHILANTROPHIC DREAMS - Dreams to do charity both like sending “unprivileged” child to school.
To better understand it, make a WISH LIST . Certainly, all of us have dreams in life. To have your own home, own car or vehicle, or a vacation in different parts of the world. To have your own family. To send your child/chilren to a top and prestigious schools and university. And many other dreams. Go ahead, write first.
Are you done?
Now that you have your list, we then need to align it to your financial life goals. Remember that every dream has a “price tag”. If you dream to have your own house, car, build your own business and travel around the world, you should instantly ask, how much is the underlying value of each dream?
For instance, you want to own a home in a prestigious subdivision with a worth value of 20M, the next question is, target when do you want to own that dream house? Or tco be exact, after a few years? 10 years? 20 years? 30 years?
So if in your wish list, you have written something like this:
“I would like to have my own house…”
add another phrase that looks something like this:
“… worth Php 10M in 12 years time.”
“I would like to have my own house worth Php 10M in 12 years time.”
or for instance, your dream is:
“I would like to travel the world…”
It would be better if you will make more specific like this:
“I’m going to Antarctica to see the penguins. I will save Php 10,000 monthly in 3 years time.”
Do you see the difference? Your former dream is not just a simple dream but it became a “PLAN”. A GOAL you set out to achieve in a specified period of time.
Remember, the dream will remain a dream if it does not have a deadline and you did not define its value. As many great Financial Planners say, in developing a financial plan, you should know the “SMART” (i never meant the SMART Telecom company in the Philippines okay?!).
- S - specific
- M - measurable
- A - attainable
- R - realistic
- T - time bound
You must consider the “SMART” for you to know if your financial life goals are a valid. It must be Specific for you to diminish the scope and be able to define your dream better. Measurable for you to know how much is the price tag of the dream. Attainable to let you know that you can collect the amount in due time. Realistic you might also dream too high (if your dream is to go to the moon …. I don’t think it’s realistic unless you’re an astronaut right?). And need to be time-bound to know and be able to define when your goal deadline.
So it is important that you write and visualize your dreams. Actually, I have known a lot of people whom they know these things but do not dedicate time to consider planning for their lives. Usually, according to the study, four in ten (4 out of 10) Filipinos do it, and have a plan. I hope you are not one of the 6 people with no clear dream in life.
Remember, you need to convert your dream into a goal. And of course, you have to try and work more or harder in order for you to achieve your goal.
Once you have written down all of your financial goals, the next step is to determine which of them should be prioritized or your priority in your life. But of course, never forget that above all, your “emergency fund” must come first.
Let’s say you have your emergency fund, you can now proceed in developing your long term goals. Why I mentioned about your long term goals first than short term goals? Simply because you should establish your long term goals ahead and carry it as you advance to something that can be develop more rapidly like your short term goals. Wait, to be clearer, how do we know if a goal is considered as short or long term goal?
Actually, there are those who say that these goals can be divided into 3. They called the other one as mid-term goal. These goals are dictated by time. But just to make it easier to understand, just imagine this: all of the goals with time frame of more than 5 years are considered as long term goals. If the time frame turn out to be less than 5 years, you should consider this a short term goal already.
Prioritizing these goals depend on the life style and status that you want to maintain. If you have a child like me, one of our priorities is to gather an amount that would able us to continuously fund our child’s education even in a prestigious university. This falls on our long term goal.
As for those single (bachelor or spinster), it could be a common goal to acquire properties such as houses, cars, wedding funds, insurances and more. They may differ on which will be the priorities among the listed above and how these priorities will fit in their plans and what they can afford with their current income.
Now that you have defined all your Financial Life Goals, where could we best put your money? Does putting it in a Savings Account will be enough? It is also important to know this for our money to grow. Our emergency fund for example, we should put it in an account where you can easily pull the money once you need it. So obviously, do not put it in a Time Deposit Account. For your short term and long term goals, since its time frame is longer, better to put it into a bank services with higher interest rate where your money can grow bigger. Now, that’s where the word “investment” comes. There are several classes of investment or more popularly known as “investment instruments” which we’ll discuss in my future articles.
Always remember, the harder you work to earn a certain amount, the hardest for it to save, invest and multiply.
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