Page 13 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Personal Financial Planning

Notes future financial security. Such objectives may include short term goals including savings for a
deposit on a house or car, or savings for a holiday, and may be for periods of up to three to four
years. Longer term goals of beyond four years include mortgage reduction, superannuation
savings for retirement and general wealth accumulation.

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Caution Financial goals must be defined as specifically as possible. Saying that you need to
save money next year is not a specific goal. But instead you must clearly define your
financial goal as how much money you need to save and for what purpose.

Example: I need to save ` 20,000 each month from my salary so as to buy a luxury car of
` 8 Lac by next year is a specific financial goal.

Life Goals

Most people nurture dreams of owning a bigger house or car, exploring the world, giving their
children the best possible education, a blissful retirement, etc. Basically, these dreams are life
goals. Consider this example.

Example: Mr and Mrs Bhanot, 35 and 32 respectively, have a three year old daughter.
Both work in private sector companies. Mr Bhanot plans to retire when he’s 50. From their
current one bedroom rented suburban Mumbai apartment, the Bhanots hope to move to their
own two bedroom apartment costing around ` 25 lakh within the next five years. They own a
small car, for which they have availed of a loan. Mr Bhanot reckons that he will need ` 15 lakh
for his daughter’s higher education 15 years later. He also wants to build a corpus of ` 75 lakh for
his retirement.
While distinguishing short-term goals from long-term goals, you must keep in mind that, as a
general rule, any life goal that needs to be met within five years can be considered as short-term.
Beyond that, any other goal can be classified as long term. By this classification, the Bhanots’
goals can be classified as follows:

Short-term Goals Long-term Goals
2BHK apartment Daughter’s higher education
Retirement corpus
Using a similar yardstick, you may classify your own life goals. Each of them needs financing.
How you plan your finances, to have the right amount at your disposal at the right time, is what
financial planning is about.

Task List down your own five short-term and long-term financial goals.

Step 3: Identify Alternative Courses of Action

Developing alternatives is crucial for making good decisions. Although many factors will
influence the available alternatives, possible courses of action usually fall into these categories:
Continue the same course of action.
Expand the current situation.

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