Adjust Net Income For Determine Cash Flow Is Correct Effective Financial Goal: The Five Characteristics

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Effective Financial Goal: The Five Characteristics

In financial management studies, an effective financial goal should have 5 characteristics that can be easily remembered as SMART. The following paragraphs explain all the 5 features:

1) Specific

We may be thinking of becoming financially free but do you know what it takes? This goal seems to be very common. Our goals must be specific so that we can focus specifically on each area of ​​financial planning and manage our own expectations easily. A specific goal usually has only one outcome.

For example, aim to invest RM200 per month in a unit trust and accumulate at least RM2400 in a year; Or spend within our budget every month. These specific objectives are going to have different impacts but when combined, they will ensure that our cash flow is healthy. When each specific goal is accomplished, we are moving closer to financial freedom.

2) Measurable

We may be working hard, but how do we know if our goals have been achieved? So our financial goals should be measurable.

For example, we want to invest and accumulate RM50,000 in 2 years and the progress can be easily measured by looking at our investment account statement.

In fact, we need to measure or review progress towards achieving goals such as 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) Achievement

Many people are influenced by the ‘Law of Attraction’ and believe that ‘nothing is impossible’. Because of this, we set difficult goals that require a lot of effort. However, are these goals realistic and achievable? It is important to know whether this goal is within your feasible and logical criteria.

For example, if your target is to earn RM1 million in one year by investing RM1000 per month in any scheme. How likely is this to be achieved? In fact, such an investment plan would require a very high ROI in a short period of time and often carries a very high risk. You can easily lose your capital.

Above all, we should not stretch ourselves to achieve unrealistic goals. This is to avoid disappointment over failure which can end in great disappointment.

4) Awarded

We want to achieve goals because there is something to gain in return otherwise no one will work hard. While working towards a goal, we must be sure of the outcome to be achieved and its importance to our life. In fact, it should be meaningful and enjoyable.

For example, a man wants to invest his money to accumulate an education fund for his son in 20 years. In future, this goal will be beneficial as his son will be able to get admission in higher education.

However, rewards can be in any form, physical, financial, relational and spiritual.

5) Time bound

We need enough time to achieve our goals. They can be short-term, medium-term or long-term depending on the type of goals to be achieved. Punctuality is an important aspect in life. So, we should fix a time to avoid delay. It would be better if everything could be scheduled.

For example, saving for retirement may take several years because it is long-term planning and involves large sums of money. Therefore, short-term (1 to 5 years) retirement planning may be unrealistic unless someone is ready to make a major commitment.

In short, time is precious because it provides opportunities for development and produces great results. So, a wise man always says, ‘Start early and stop delaying’.

Summary

An effective financial goal always has these smart features; Specific, measurable, achievable, rewarding and time bound. This is to ensure that our goals are meaningful and move us closer to financial freedom. Good luck with your goal setting.

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