FINANCIAL PLANNING SERIES – Part 3
- 3-minute read
In the last part, we talked about the importance of planning. In this part, we will now discuss the first step in financial planning, which is setting your goal.
Every plan starts with a goal.
A goal is what you are planning for. It is your WHY, WHERE and WHAT: Why do you do what you do? Why do you want to invest? What do you want to achieve? Where do you see yourself 5 or 10 years from now.
Goal is like the location in your map that’s marked X. It’s what you want to achieve at the end of your journey. For example, your goal every morning is to get to your office on time. Thus your office is your X.
However, when planning, you cannot simply put just any goal. It has to be a SMART goal – it must be Specific, Measurable, Attainable, Realistic/Relevant, and Time-bound.
For example, when buying a car, you don’t simply say, “I’ll buy a car”, and then buy just any brand and model you set your eyes on, unless you have unlimited resources to splurge on.
Usually when we buy a car, we first check out the brand and model that we prefer. We also factor in our budget, and to some extent, a justification of why we need to buy a car.
Let’s say, all things considered, you’ve finally decided to buy a car. You then set your goal as follows:
To buy a red 2020 Perodua Bezza 1.0 Standard G – A/T in 2 years time.
Going back to the SMART Goal test, you should be able to answer these questions:
- Is it specific?
The color of the car is specified, as well as the brand, model and other specifics such as the year it was made, the transmission, and etc. The timeline of the goal is also mentioned, which is 2 years.
- Is it measurable?
It is measurable as you can easily track your progress as to how much money do you need to save to buy this car that you want and how much time do you need to save that money.
It is measurablel because other specifications of the car that you want are already mentioned, such as the color, the engine type, transmission type and etc.
- Is it attainable?
It’s not like you’re planning to buy a spaceship in 2 year’s time given your current salary. It’s a car that’s below RM 40,000, which you plan to buy after 2 years of saving up.
- Is it realistic or relevant?
It is realistic as you know you are capable of buying this car. It is also relevant, especially if you work and live in Malaysia, wherein owning a car is somehow a necessity.
- Is it time-bound?
It is time-bound. You are giving yourself a deadline of 2 years to buy that car.
When setting a goal for your financial plans, you can follow the steps above. Don’t simply set a goal such as “To have a better future”. Your investment or financial goal could be to pay off your RM20,000 loan in 3 years or to set up your milk tea franchise worth RM100,000 in five years time inside Queen’s Bay Mall – the key is to be specific as much as possible.
Next we’ll be talking about assessing your financial situation to achieve your goal. We will discuss the steps on how you can do it and some tools you can use to make this process easy and quick for busy people like you.
You can check the second part of our Financial Planning Series, “Financial Habits in Malaysia and Around the World”, here.
You can also watch the first video of our Financial Planning Series here.