What is the purpose of setting financial goals?

Setting financial goals serves the crucial purpose of providing a direction for budget creation. By establishing clear and specific financial goals, individuals can prioritize their financial decisions and allocate their resources effectively. These goals act as a roadmap that guides how income is spent, saved, or invested, helping to ensure that financial activities align with one's overall objectives, such as saving for retirement, purchasing a home, or funding education.

When financial goals are clearly defined, they facilitate the budgeting process by identifying critical areas to focus on and necessary expenditures to consider, leading to more informed and purposeful financial planning. This ensures that individuals can work towards their desired outcomes in a structured and strategic manner.

In contrast, increasing expenses does not align with the nature of setting financial goals, which typically emphasizes savings and financial health. Evaluating income sources, while educational, does not provide the structured guidance needed to create a budget. Assessing investment risks relates more to investment strategy than to the foundational aspect of budgeting that goals provide. Thus, the focus of goal setting lies firmly in shaping the financial planning process through budget creation.