Begin with the end in mind. This is the famous quote from Stephen Covey. As we welcome the new year, existing goals are reviewed and new goals are created. Goals define our priorities in life. Goals define how we live our lives. Knowing where one is and knowing the destination fuels our journey. In the context of personal finance, goal setting becomes a very significant exercise we need to do. Goals can be set depending on the life stage we are in. Goals can also be set depending on the fulfillment of needs.
Different life stages yield different goals. For young people, the focus can be on living for the “now” and establishing a good career. “Yolo,” which means “you only live once,” is a popular slogan for young people. “Fomo,” which means “fear of missing out,” is another popular slogan. Most financial goals can thus be short term in nature. Liquidity would be a top financial goal. Having quick access to funds for present concerns will be pursued. Saving might be present but often takes a backseat to spending.
For middle-aged people, living for the “me” can evolve into living for the “we.” Goals set in this age group can be related to additional responsibility as a result of a change in civil status. Saving can become a more important activity. Budgeting can be more common with the hope of having more sustainable living. Consumption can be sacrificed in favor of long-term goals like family protection, asset generation, wealth accumulation and retirement. The balance between liquidity goals and growth goals defines success here.
For seniors, the financial goals may be about having ample funds to support retirement. Ideally, at least some element of planning for old age must have commenced as early as possible in the previous life stages. Though it is in this stage that employment may cease, contributing to society in various other ways becomes a passionate aspiration. Financial goals can also be related to estate planning in terms of wealth preservation and equitable distribution of wealth to designated heirs.
Financial goals are also set depending on needs. Abraham Maslow is famous for developing the theory of the hierarchy of needs. Basic needs have to be fulfilled first before more advanced needs come into play. The first set of needs would be the physiological needs. Financial goals in this set could be related to provision for basic items like food, clothing and shelter. The second set of needs would be the safety needs. Financial goals in this set could be related to having an emergency fund and insurance policies to prepare for fortuitous events and have better financial security. The third set of needs would be social-belonging needs. Financial goals in this set primarily evolve around family and friends.
The fourth set of needs would be esteem needs. Financial goals in this set could be related to the pursuit of a meaningful career or source of livelihood. The fifth set of needs would be the self-actualization needs. This need is all about maximizing one’s full potential as a human being. Financial goals in this set could be related to the attainment of financial freedom for both the individual and for society.
Truly, having a goal, regardless of what life stage one is in or what need set one is fulfilling, is very important in life. The financial goals must be aligned with the purpose and passion of the individual. The financial goals must be ambitious. Tomorrow must be better than today. These financial goals should help one have a well-lived life and have a well-appreciated legacy. We all know that the financial goals must be “Smart.” They must be specific, measurable, achievable, realistic and time-bound. Every financial goal must be supported by a good plan. One such plan is a budget to manage inflows and outflows. A plan is only as good as its execution. The financial goals must be periodically reviewed and key milestones can be set to track progress. This new year, let us set our financial goals and commit to achieve them.
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Gemmy Lontoc is a registered financial planner of RFP Philippines. To learn more about personal financial planning, attend the 67th RFP program this January 2018. To inquire, e-mail info@rfp.ph or text <name><e-mail> <RFP> at 0917-9689774.