Learn The Financial Discipline One Requires To Achieve Financial Goals 101: Everything You Wanted To Know

Ask yourself these questions:

Have you made a detailed financial plan and goal?
Is your retirement, purchase of that dream house, SUV, foreign holiday, kid's higher education, etc., part of that financial plan?
Do you know how much you should save and invest to achieve your goals?
Are your monthly savings enough to achieve your goals?
Ok, what is your monthly expense, and do you track them monthly?

If you are not confident about any of the questions above and your answer is ‘No,’ this article is for you.

Earning a higher salary and increasing it every year is part of the game, but many of us think our rising income will determine our future and help us achieve our dreams. Although income is the primary source of reaching our financial milestone, it seldom guarantees to buy that dream house and attain financial freedom. But we must clarify certain things while it is contradictory that if we earn well, we live well and can fulfill all our dreams. Time to unlearn a few lessons and adapt to new ones. Are you ready for it?

We can achieve all future goals with our savings and the returns we earn on those savings, beating inflation. So it is not just the earnings, there is a strong filter called expenses which eats away most of your high-fat cheque, and then there is inflation which is ready to pounce its share even in the future out of your savings and returns.

(Earnings or Salary) – Expenses= Savings;

(Savings + Returns) – Inflation = Your Financial Capability in Future
(to buy your home, car, holidays, financial independence, kid's education)

From the above equations, we can see that between the journey from earnings to achieving your future financial goals, expenses, savings, returns, and inflation will decide your financial capability. Therefore, we need more than just earnings/salary to reach our financial goals. To be successful financially, we should be clear on our financial goals.

Financial Goals

One should clearly define the short-term, medium-term, and long-term goals. These would be very personalized goals and will differ for each person as per needs. However, some of the common ones can be

Short term: Paying off credit card debt and personal loan, domestic holiday, Two-wheeler, etc
Medium-term: Paying off home loan debt, building an emergency fund, an international holiday, SUV, financial independence
Long-term: Buying a dream house, kids higher education, kids' marriage, retirement corpus, financial independenc

Everyone has these goals on their mind. However, the key is to put them together on paper or online, quantify the required amount, and link them to the exact time duration. Now comes the exciting part of achieving these financial goals, for which you need to have a plan in place and specific strategies to implement it.

Financial Planning and Strategies

One part of it can be a detailed calculation of how much you should save today with an assumption of a step-up increment in future years (assuming an increase in earnings each year). Next comes how much the return on the investments you make from your savings should be. You may have to decide the mix of assets based on the kind of return. For example, if the need is only 8-9% return per annum, you don’t have to take any risk; only debt investments and bonds can help you reach your goal. However, if the return asks is more than 12-13%, then there has to be a certain percentage of equity investments, but investment in each asset class carries risk; therefore, the allocation should be as per risk appetite and age of the person.

There are several more components in it. You may be in a better position by repaying your debt before investing full-fledged, particularly credit card debt or personal loan, which carries high-interest rates. Another important element would be checking your current insurance policies and opting for low-cost term insurance. You may also have to make your plan tax efficient as it may eat out a substantial portion of the returns. One should also have an emergency fund in the plan, which will help in unforeseen events.

Now we have a goal, plan, and strategy to achieve the goal; however, next, we need financial Discipline because if that is missing, all dreams and goals will stay on paper.

Financial Discipline

Once you know how much you have to save each month from your financial plan, the journey may sound simple may sound simple, but this path is challenging when impulsive buying and peer pressure to spend are the norms of the day. Money is considered a good servant but a bad master too. If you don’t know what to spend and how to save, it will bring a financial crisis in your life today or tomorrow; it is just a matter of time. You may have known people in your circle who earn a lot, but even after earning for the last 25 to 30 years, they are still looking for resources to be rich. As discussed above, it is crucial to increase your return by allocating to different asset classes; however, the prime requirement is good savings.

Everyone has their way of saving money however following are some of the financial tips you may ponder.

1. Reflect on your spending patterns:

Note for a few months what you what you spend on (check your bank statement, credit card bills, and cash payments), as there may be stuff you are spending on that you don’t require. It generally happens when you shop without a list and make impulsive buying. Each month you can analyze and remove a few items which are not useful; this way, you can increase your savings a little. Another trick may be to put off your purchase for a few weeks after it comes to your mind (except the essentials). After one month, you may buy it if it stays on your mind. After you do this exercise for a few months, you can work on a budget, as now you know your requirements and then track your budget regularly. Surprisingly, people need to learn their requirements and their monthly budget. Often people are surprised to see their high credit card bills and witness several defaults.

2. Develop financial Discipline at a young age:

It is better to have good spending habits and track your financial goals early in your life, this will keep you ahead, and you can reach your goals early too.

3. Put brakes on debt:

Pay credit card debts each month, repay all personal loans, and try to take any in the future only if there is an emergency that we can’t fulfill even with an emergency fund. Furthermore, avoid schemes such as Buy Now Pay Later, which breaks your financial Discipline.

4. Automate your savings and investments:

One prudent way to save and invest is to automate it. Start Recurring deposits, which would deduct automatically from your saving account every month. Similarly, start SIP in mutual funds monthly. Put the payment dates just after your salary is credited; this significantly helps make savings and investments. And now, you can spend the rest.

5. Never take peer pressure:

Don’t mimic your friends and relatives in spending; we all are different and have our journeys in life. Our cash flows are different, so buying that expensive watch or a car can ruin our financial health. Also, never compare goals and strategies, as other methods might have worked for someone but may not work for you. We should stick to our requirements, goals, and objective in life.

We can’t achieve financial Discipline and goals in a short duration; it needs continuous efforts of earning, saving, and investing. However, once you reach it, it will help you escape stressful financial conditions. It can even reward you by helping you buy your dream home, international vacation, international vacation, opening your dream cafe or boutique, helping the unprivileged, or having a relaxing retirement. a relaxing retirement. So, are you ready to travel this journey and take this challenge of financial Discipline in your life?

Final Thoughts

Disclaimer: This article is for awareness of financial Discipline only and is not investment advice. For discussing and making your financial plan/Goals, please connect with a registered and qualified financial planner.

Rajiv has worked for more than 15 years with Big 4 and other Multinational companies such as KPMG, EY and C&W in research and consulting role. His educational qualifications include BTech from NIT Nagpur and Masters in Construction Management. Apart from his primary expertise in real estate business, he is passionate about personal finance and stock markets. He is avid reader and researcher who enjoys sharing his learnings in the field of personal finance and capital markets.

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