Throughout your life, you may have learned that setting goals is important for achieving long-term success. After all, it’s challenging to reach a destination without clearly defining where you want to go. This principle relates to finances as well, which is known as goal-based investing.
In this blog, we will discuss the meaning of goal-based investing, how to financially plan your goals, and how goal-based investing can help build wealth.
What Is Goal-Based Investing?
Goal-based investing is a strategy centered on investing to achieve specific life goals rather than solely aiming for the highest portfolio returns or trying to outperform the market.
These goals can vary widely, including saving for a child’s education, building a retirement fund, planning a dream vacation, or purchasing a car or home.
The beauty of Goal-Based Investing is its straightforwardness. It clarifies your investment journey and helps you concentrate on what truly matters: reaching your life objectives.
What Are the Benefits of Goal-Based Investing?
Goal-based investing provides numerous advantages, making it an appealing strategy for both beginners and experienced investors.
Clarity and Focus
Clarity is one of the most significant positive points as a result, when it comes to Goal Based Investment. When you establish specific goals, you gain a clear perspective on what you are striving to achieve.
Such clarity helps one to concentrate and stay motivated, as one is not hoping to become just richer but has a clear objective in mind.
Personalized Strategy
Goal-based investing enables you to design a customized investment strategy. Each goal comes with its own time frame and risk tolerance, allowing you to adjust your investment selections accordingly.
For example, short-term goals may necessitate low-risk investments, while long-term goals can take advantage of higher-risk options for the potential of greater returns.
Help You Maintain Financial Discipline
If you do not clearly and diligently specify your goals, you have every chance of running out of money when it’s needed. This could lead you to rely on loans to meet your objectives. While loans can provide immediate assistance, they can also trap you in debt.
By adopting a goal-based investing approach, you can work toward your objectives without the pressure of desperate borrowing.
How to Do Goal-Based Investing in India?
Goal-based investing is a systematic approach that involves several key steps.
1. Identify Your Goals
The first and most important step in planning your finances based on your goals is to identify what those goals are. Start by writing down all your goals on a piece of paper and then group them by when you want to achieve them.
For example, planning for retirement is a long-term goal, while saving for a down payment on a house is a mid-term goal, and paying off a personal loan is a short-term goal. This will help you see how much money you need to reach your goals and how much time you have to achieve them.
2. Consider Your Risk Appetite
The next step in planning your financial goals is to think about how much risk you’re comfortable with. In India, there are many investment choices, and each comes with its own level of risk.
For example, investing directly in the stock market or choosing small-cap equity mutual funds can be riskier than safer options like Fixed Deposits (FDs), Bonds, the Public Provident Fund (PPF), and Debt Funds.
It’s important to pick an investment that aligns with your goals but also matches your risk tolerance.
3. Calculate How Much You Can Invest Regularly
Once you’ve set your investment goals and decided how much risk you can handle, figure out how much you can invest regularly.
When doing this, remember to account for your current loan payments and living expenses. Also, think about how your investment amount might change over time.
For example, you could have more money to invest after you finish paying off a loan. On the other hand, if you take out a new loan, your investment amount may go down.
4. Create an Emergency Fund
One important thing many people forget about when planning their investments is having an emergency fund.
Life can throw unexpected challenges at us, like a hospital visit, losing a job, a family wedding, or an unplanned trip. These situations can really affect your finances and make it hard to stick to your investment plan.
It’s recommended to save enough in your emergency fund to cover at least six months’ worth of expenses.
Conclusion
By using goal-based investment planning, you can clearly determine how much to invest, where to put your money, and when to make those investments. This approach not only gives you a sense of direction but also helps you stick to your investment plans. Additionally, it can help you resist making impulsive decisions, keeping you focused on your long-term goals.
To achieve your financial goals with goal-based investing, reach out to Moat Wealth.