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2 mins Read | 5 Years Ago

How to Set a Goal for Investment


When it comes to planning your finances and building your wealth, the first step is goal setting. Just like you need a map to guide you on a road trip, you need the right financial goals to help you get your investments on track.

Everyone has various goals in life for which they need money. For instance, you may be able to manage your monthly expenses from your salary, but will you be able to save for the down payment of your Housing Loan from your regular income? Or fund your child’s higher education? These are bigger goals that require the help of the right investments. So you need to set financial goals before deciding on your investment products.

This is why you need to set financial goals before deciding on your investment products.

Goal-Based Investing – What it is and Why is it important?

Traditionally, investors were focused on picking the best performing investment products in the market. They were on the lookout for products which offered the highest returns while suiting their risk profiles.

Today, investing experts recommend a new approach to invest — goal-based investing. This means investing with a specific goal in mind, such as saving for your child’s higher education, a family vacation, buying a home, renovating your house or building a corpus for retirement.

In goal-based investment, investors don’t compare the returns offered by investment products. Instead, they examine the features of investments, analysing whether that will help them reach a specific financial goal.

Why is it Important to Set Goals when Saving?

Here are three reasons why you need goals before you start saving:

  • Without the right objectives, you are more likely to invest in random products that you come across. This could lead to an overlap in your investment products, causing an inconsistent investment portfolio.
  • When you set goals, you are likely to set the time frame and risk levels for each goal. This gives you a clearer picture of the right investment products to pick from.
  • When you set goals, the chances of you achieving them are higher. You’re likely to feel more motivated and can gauge your progress easily.

Now that you realise the importance of financial goal setting, we’re sure you’re wondering how to set the right financial goals.

Three Steps to Identify and Draft your Financial Goals:

Step 1: Make a List of Short-term Goals

These are goals that you want to achieve within the next two to five years, something like replacing your old desktop computer with a high-end gaming laptop, upgrading your car, taking an overseas vacation with your family, renovating your house and so on. Divide your short-term goals into needs and wants.

Step 2: Make a List of Long-term Goals

These are goals that you want to achieve in five years or more. It includes big goals like saving for retirement, building funds for your child’s higher education, marriage expenses, buying your dream home and so on. Again, divide this list into needs and luxuries.

Step 3: Working out the Details

Arrange your goals according to your priority. Rank the most important ones at the top and the less important ones at the bottom. Next, specify two numbers for each goal. One — the amount of money you need to reach that goal, and two — the time limit to achieve it. Here are a few examples:

Here are a few examples:

  • Save 20 lakhs for your child’s education within the next 10 years
  • Save 75 lakhs for retirement within the next 30 years

Financial Goals : The Cornerstone of your Investments

As you can see, the investment products you add to your portfolio are highly dependent on your specific financial goals. Start by identifying your financial goals so that you can choose the right investment products which will help you reach your goals quickly.



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