Simple Steps to Make Goal based on Investment

December 12, 2018

While an increasing number of young working professionals in India are now starting to understand the importance of investing from an early age, not many of them have clear goals in mind when selecting an investment option. Any investment without a fixed goal is a poor investment.

If you have multiple financial goals in life, attach them to your investments to be able to actually achieve them. With goal-based investing, you get a clear finishing line and find it easier to select the best investment option. Moreover, it also helps you monitor whether or not you are on the right track.

But for a lot of new investors, the beginning is often the most difficult. Follow these five steps to start selecting investments based on your goal:

1. Identify your goals and prioritise them

The first and probably the most essential step for goal-based financial planning is to identify your goals. Just write down all your goals on a piece of paper and divide them on the basis of when you would like to achieve those goals.

For instance, retirement planning is a long-term goal, down payment of a home can be a mid-term goal and repaying a personal loan can be a short-term goal. This will provide you with a clear idea on how much you need for achieving your goals and how much time you have to meet them.

2. Consider Your Risk Appetite

The next step in goal-based planning is to focus on your risk appetite. There are now several investment options in India and each of them come with their own risks.

For instance, direct stock market investment or small-cap equity mutual funds are riskier when compared to options like FDs, Bonds, Public Provident Fund and Debt Funds. Avoid selecting a particular investment option that suits your goal but is not in line with your risk appetite.

3. Calculate How Much You Can Invest Regularly

After finalising the objectives and risk appetite, calculate how much you can invest on a regular basis. When calculating, make sure that you consider your current loan Equated Monthly Instalments, expenses, etc.

You should also focus on how your investment amount can increase or decrease in the future. For instance, you might have more money to invest once you are done with repaying a loan. Or maybe, the investment amount will decrease if you take a new loan.

4. Create an Emergency Fund

One often overlooked aspect of goal-based investing is not creating an emergency fund. There are plenty of things like hospitalisation, job loss, marriage in a family, an unexpected vacation, etc. that can easily damage your finances. Such instances can make it difficult for you to keep up with your investment strategy.

Having an emergency fund will work as a cushion between such emergency expenses and your investment strategy. It is recommended that your emergency fund should have enough money to accommodate your expenses for at least six months.

5. Revise Your Plan at Regular Intervals

When your goal-based investment plan is ready and you have started investing, make sure to track your growth carefully and make changes to your plan when required. For instance, if you have achieved a particular goal, try to shift the target corpus to assets that are safer.

Moreover, the goals and priorities will also change throughout your life. While it is essential to remain focused on your long-term goals, your current quality of life should not suffer in the process.

Achieving Life Goals with Goal-Based Investment

Follow these steps if you are planning to start your investment journey to be able to reach your financial objectives effectively and they don't just remain unaccomplished dreams. More importantly, start goal-based savings and invest as early in life as possible to get better results, sooner in life.

 

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