How to Establish Goals

Establishing the Financial Course

Investing is more than just putting money into stocks, funds, or other available options in the market. It’s a process that requires planning, strategy, and, above all, clear objectives. Just like on a journey, where it’s essential to know where you’re going, in the world of investments, setting objectives is the first step to determining the best route to take.

Why Setting Objectives is Crucial?

Imagine yourself on a car journey. Before leaving home, you probably planned your final destination, right? Similarly, when investing your money, it’s essential to have a clear objective in mind. This not only gives you direction but also helps evaluate which investments are most suitable for achieving your financial goals.

How to Choose Investment Objectives?

1. Financial Self-Assessment: Before defining your investment objectives, conduct an honest analysis of your financial situation. Evaluate your income, expenses, debts, and financial reserves. Understand your risk tolerance and savings capacity.

2. Set Short, Medium, and Long-Term Goals: Identify specific goals for different time horizons. Short-term goals may include buying a car or taking a trip. Medium-term goals could be buying a house or financing education. Long-term goals typically involve retirement or wealth building.

3. Be Realistic and Measurable: Set goals that are realistic and measurable. Avoid vague goals like “getting rich” and opt for something more tangible, such as “accumulating a six-month emergency fund” or “achieving an annual return rate of X%.”

4. Prioritize and Reprioritize: Not all goals have the same importance or urgency. Prioritize your goals based on their relevance and necessity. Be prepared to adjust your priorities as your financial situation and aspirations change over time.

5. Consider Risk and Liquidity Factors: When choosing investment objectives, consider factors such as risk tolerance and liquidity needs. Short-term goals may require more conservative and liquid investments, while long-term goals may allow for a more aggressive approach.

Putting It Into Practice

Let’s create an example based on the above tips for a father in his thirties, with a wife and a couple of children living in Japan. One of their goals is to retire with an income equivalent to 400,000 yen per month.

1. Financial Self-Assessment:

   • Combined monthly income of the couple: 600,000 yen
   • Monthly expenses, including housing, food, children’s education, healthcare, and leisure: 500,000 yen
   • Debts: They don’t have significant debts, except for the mortgage on their house.

2. Set Short, Medium, and Long-Term Goals:

   • Short-Term (1-3 years): Save for family trips and build a 3-month emergency fund.
   • Medium-Term (3-10 years): Save for a car purchase and start an education plan for the children.
   • Long-Term (10+ years): Accumulate a retirement fund to ensure a monthly income of 400,000 yen after retirement.

3. Be Realistic and Measurable:

   • The retirement goal of 400,000 yen per month is realistic, as it’s an amount that will allow the couple to maintain their standard of living after retiring.
   • The goal is measurable, as the couple can calculate how much they need to save and invest over the years to achieve this retirement income.

4. Prioritize and Reprioritize:

   • The initial priority is to build a 3-month emergency fund and start an education plan for the children.
   • As these short and medium-term goals are achieved, the priority will be to increase contributions to the retirement fund.

5. Consider Risk and Liquidity Factors:

   • Since retirement is a long-term goal, the couple may consider more aggressive investments, such as stocks and real estate funds, to achieve higher returns over time.
   • They should also keep a portion of their investments in liquid assets, such as emergency funds and government bonds, to ensure access to money in case of need.

Based on this information, the couple can develop a detailed financial plan that includes monthly savings goals, investment strategies, and periodic reviews to track progress towards their short, medium, and long-term goals.

Remember:

The ideal is to know the destination (objective) to determine the best route (investment) to follow.

Conclusion

Choosing investment objectives is a fundamental step in achieving financial freedom and realizing dreams. By setting clear, realistic, and measurable objectives, you can create an investment plan that will guide you on the journey to financial success.