Setting Financial Goals in 2014

Setting Financial Goals in 2014 - Financial Goal Setting

Before you begin to set financial goals, it is important to first of all assess your financial health. You can do this by calculating your net worth.

Calculate your net worth by determining your assets and liabilities and deducting your assets from your liabilities. Assets include cash equivalents (current account, savings account, money market accounts, certificates of deposits, treasury bills and cash value of life insurance) , investments (stocks, bonds, mutual fund investments, partnership interests), retirement funds (pension, retirement savings account), and personal assets ( residences, automobiles, art, antiques, home furnishing, jewelry). On the other hand liabilities include, credit card balances, personal loans, student loans, car loans, margin loans, mortgages,  life insurance policy loans and projected income tax liabilities.

You have a net worth if your assets exceed your liabilities, however if your assets are equal to your liabilities or less than your liabilities, this means that your financial position is weak.

Once you have determined your financial health/position is it important to begin to set financial goals. Examples of financial goals to consider setting include the following

1. Pay off your debt: This year set a goal to pay off your debt. In this case debt refers to consumer debt. Consumer debt is basically debt that is used to fund consumption (acquiring bags, electronic toys etc). This type of debt includes, credit card debt, car loans etc.  A suggested approach would be to spend less than you earn and do not acquire anything that you do not have the cash to pay for. Try to reduce impulsive and compulsive spending.
2. Create an emergency fund: It is important to create an emergency fund. In life unforeseen incidences occur such as illness, loss of job, etc. It is important to create an emergency fund to mitigate against these unforeseen incidences. Financial planners suggest that you have atleast 3- 6 months of your monthly income saved. A goal setting tip would be to create a savings account and instruct your bankers to debit your account on a monthly basis with the intended sum. It is important to ensure that the savings vehicle is safe as the objective is not to increase wealth but to create a safety net.
3. Plan for retirement: It is important to plan for retirement even if you are not in retirement age. Actually this is the best time to plan towards retirement. It is essentially just saving for the long term. You can do this through various vehicles such as a pensions fund or a retirement savings account. Planning for retirement enables you to maintain your standard of living when you are in your golden years.