Effective financial goal: The five characteristics

In financial management studies, an effective financial goal should have 5 characteristics that are easily remembered as S-M-A-R-T. The following sections explain all the 5 properties:

1) Specific

We may be thinking about being financially free, but do you know what it takes? This goal seems to be too general. Our goals must be specific so that we can focus especially in each area of ​​financial planning and easily manage our own expectations. Specific goals usually have only one result.

Eg. Aim to invest RM200 per Month in unit trust and accumulate at least RM2400 in one year; or spend within our budget each month. These specific goals have different results, but when combined, they will ensure that our cash flow is healthy. Once each specific goal has been reached, we are getting closer to financial freedom.

2) Measurable

We may work very hard, but how do we know if our goals have been achieved? Therefore, our financial goals should be quantifiable.

On a case-by-case basis, we want to invest and accumulate RM50,000 in 2 years, and the progress can be easily quantified by looking at our statement of investment account.

In fact, we need to be able to measure or review the progress of achieving the goal, such as calculating our current net worth, debt to income ratio and review, return on investment (ROI) and our current insurance policy. It is good if we can keep a journal and review our current planning.

3) Achievable

Many people are influenced by the 'Law of Attraction' and believe that 'nothing is impossible'. Because of this, we tend to set difficult goals that require great effort. However, are these goals realistic and achievable? It is important to know if the goal is within our potential and logical norm.

For example, if your goal is to achieve RM1 million in one year by investing only RM1000 per Month in any scheme. How likely can these be achieved? In fact, such an investment scheme will require very high ROI within a short duration and often with very high risk. You may have lost your capital easily.

The most important thing is that we should not stretch ourselves to reach unrealistic goals. This is to avoid frustration over failure, which could end with great disappointment.

4) Reward

We want to achieve a goal because we want to get something in return otherwise no one will work hard. As we work towards goal attainment, we need to be sure what the outcome will be and that is important to our lives. In fact, it has to be meaningful and entertaining.

For example, a man wants to invest his money to raise education fund for his son in 20 years. In the future, this goal will be rewarding because his son will be able to enroll in higher education.

However, the rewards can be in any form as material, economic, relationship and spiritual.

5) Time-limited

We need enough time to reach our goals. It can be short term, medium term or long term, depending on the type of goal to be achieved. Topicality has been an important aspect of life. Therefore, we should set a time frame to avoid postponement. It would be good if we could set a schedule for everything to do.

In some cases, saving for retirement would require many years because it is a long-term planning and involves a huge amount of money. Therefore, planning for retirement in the short term (1 to 5 years) may be unrealistic unless someone is willing to have a major commitment to this.

In short, time is invaluable because it provides opportunities for development and creates greater results. That's why the wise man always said 'start early and stop procrastinating'.