Mayank Bhatnagar Co-Founder & COO
When it comes to financial goals, many folks have a long list. But they’re often short on cash to make all those dreams happen. So, they can rank their financial goals based on how soon they want to achieve them. This article will guide you on how to categorize your financial goals into short, medium, and long-term ones and prioritize and achieve them.
Categorizing Financial Goals
Divide your financial aspirations based on how soon you want them accomplished. They neatly fall into three buckets.
- Short-Term Financial Goals
Goals that should be hit in less than three years fall under short-term. These should grab your immediate attention. Examples are:
- Building up & keeping an emergency fund.
- Getting term life insurance for family breadwinners.
- Buying family health insurance.
- Clearing high-cost debts like credit cards & personal loans.
- Saving for an annual family trip.
- Buying a scooter, etc.
- Medium-Term Financial Goals
A goal that takes three to seven years is a medium-term aim. Focus on these after ticking off short-term goals. Think along the lines of:
- Saving for a home down payment.
- Putting money away for starting a business.
- House renovation.
- Buying a car.
- Saving for an international family holiday, etc.
- Long-Term Financial Goals
Goals stretching beyond seven years are considered long-term. Aim for these after short and medium-term tasks. Some examples:
- Building funds for children’s education & marriage.
- Retirement savings for you & spouse.
- Paying off the home loan ahead of time.
- Achieving financial freedom, etc.
Note that individuals may shift priorities. For instance, if one’s rushing to pay off a 10-year home loan in 5 years, it becomes a medium-term goal instead of long-term. Similarly, house renovation might become short-term if immediate.
Prioritizing Financial Goals
With limited funds, people can’t target all goals simultaneously. Start with necessities.
- High-Cost Debt Repayment
First, tackle expensive debts like credit card dues or personal loans. Credit card interests range from 36% to 42% annually—a big bite!
- Term & Health Insurance
Post debt-clearing, arrange term insurance for breadwinners and health insurance for the family. Build an emergency fund; aim for 3 to 6 months’ expenses.
- Other Short-Term Aims
With insurance & emergency funds sorted, tick off other short-term goals. Delay less urgent ones like family vacation funds until higher priorities are managed.
- Medium-Term Focus
After short-term needs, shift to medium-term goals. Pick priorities among house renovation, business funding, or home down payment based on funds & necessity.
- Long-Term Targets
Later, redirect attention to long-term goals like children’s education and retirement funds. Start these alongside medium-term goals if possible, even with small amounts.
- Lifestyle Aspirations
Once things are stable, fund lifestyle wants. Secure finances allow for luxuries like fancy vacations or upgrading gadgets & cars.
Categorize Your Goals & Make Them Happen
Ideally, one would have ample capital for all goals at once, but that’s rare. Usually, people face limited investment resources. Consulting with a financial advisor helps to define and prioritize goals according to their timeline.
As your income rises, you’ll gradually invest in all goals. Until then, prioritize based on urgency & need to keep making progress. Reward yourself with small treats when milestones are achieved—it keeps motivation alive till every goal is met!
