There are very few people who would think of accumulating money for the purpose of hoarding it. Many of us work and invest in order to be able to afford a home, healthcare, education, vacations, a decent retirement or even just a preferred lifestyle. Setting and writing down financial goals can provide clarity for your financial and investment decisions in a number of ways I will explain here.

For the purpose of this post, a financial goal is simply a significant activity or acquisition you want to undertake with money. Therefore accumulating a specific amount of money will not count here although it is a legitimate financial goal. This post is about material things and experiences, not cash balances. With that out of the way let’s get started.

The first reason why you need a financial goal is to be able to make better financial decisions. Without a plan, you can sit back and just save money with a rough idea of what you plan to use that money for sometime in the future. But if you have a specific objective such as owning a home, then you will do more than save. You will seek to educate yourself on mortgages, land prices, buying vs building, deciding whether to save the money or buy cement now, and so on. In essence, the research that comes with looking to finance a specific objective will leave you so well informed that you’ll be able to make better financial decisions overall.

Financial goals also help to enforce financial discipline. Everybody who has been saving for a decent number of years knows how difficult it is to hit savings targets due to impulse buying. Having a financial goal will not entirely solve this problem, but it will create an extra incentive to stick to your savings targets.

Having a financial plan also allows you to judge the returns of your portfolio by a metric which is practical. For example, if your plan is to own a home, then you will view the value of your portfolio relative to the price of real estate. If your portfolio is returning 12% per year but real estate prices are rising at 15% per year, then you can see that your returns are not keeping up and that you may have to readjust your portfolio.

Sometimes we forego opportunities that are available because we believe they are only attainable with a specific amount of money. Having financial goals changes that type of thinking by allowing you to focus on the financial goal rather than just acquiring the funds for that goal. If your financial goal is to start a business so that you can quit your day job, that goal will have you constantly looking for ways to start even if you have not secured the capital. You could apply for a state-sponsored entrepreneurship grant or loan, for example. If your financial goal is to buy a car, you could find great deals in the used car market or find an autoloan with a reasonable interest rate.

In summary, financial goals help us to focus on what is really important. We work, save and invest to do the things that will make us live our life how we want it. And focusing just on monetary values can distract us from our real goals.

If you found this post useful, kindly share. Leave a comment if you have any questions and most importantly, take some time to write down your financial goals.