You can free yourself from the stress of ‘debt and desire’ with goal-based financial investment. Whether you are eyeing that marquee EV, a vacation in Iceland, your dream home, or a big fat wedding for your child, financial forward-planning can cover those expenses, debt-free — therefore stress-free. So, time to set your goals, and start saving.
You have a beautiful house and a loving family, your job is going great and everything is perfect. But something’s missing. As you grow older, with the lack of sound financial planning, you realize that your constrained finances are limiting your capacity to dig into the luxuries of life.
Nobody wants to look back on their years with regret. A little financial planning can help you happily enjoy a stress-free life. Here are some tried and tested tips on how goal-based investments can help individuals organize and control their financial future, taking them towards the big-ticket luxuries they aspire for.
What is goal-based investment?
What is the first thing you do when you plan a vacation? Do you book your tickets first? Or plan the itinerary down to minutest details? Or finish your packing? All of these will happen later. You first choose your destination. The place you wish to visit.
The same approach is to be used in investment. The first thing that you should do with your money is deciding your goal, for which you need to save money. Investing without a purpose is akin to gambling, which may not be sustainable in the long term and can be halted at any point if an emergency arises. So, always start with your goals — this is what goal-based investment is all about.
You may have several ambitions, from purchasing your dream house to planning your retirement. Goal-based investment provides you with not just a sound investment plan but also a roadmap to achieving your objectives and, as a result, a stress-free future.
Why should one define goals before investing?
Your desires grow stronger day by day, but will you be able to fulfill them with no financial planning? Here are a few reasons why you should start thinking about goal-based investing.
Seek clarity and make wise investment decisions
Goal-based investing provides you with a clear image of your financial objectives. For example, if you are saving and investing for a home today by sacrificing a foreign vacation, you know you are on the right path. The focus and determination required to achieve your financial goal teach you financial discipline and improve your money management skills, allowing you to invest wisely.
You will know when and how much money you will need to meet your goals. Hence, you will be able to make informed investment decisions. You will understand your specific requirements, so you can determine which life insurance policy you need; if mutual funds are a viable investment; and how much money you would require to withdraw comfortably.
Risk profile and return appetite
Just saving money is not enough. If the interest rate on your savings account is less than the rate of inflation, you will not be able to meet your goal. Hence, you need to invest in suitable investment options in order to compound your capital over the years.
The basic purpose of investing is to compound the capital over a longer period of time. You may invest in SIPs, ULIPs, a life insurance policy, etc. Depending on your risk appetite, you may need to use a combination of various investment products to fulfill all of your objectives efficiently.
You may improve your returns by allocating each rupee of your investment to a specific financial goal. Various investment options should definitely be added to meet a variety of objectives. This diversifies your portfolio, lowering your risks while improving your long-term wealth-building prospects.
You can free yourself from the vicious circle of ‘debt and desire’ with goal-based investment. Whether you want a car, a vacation, your dream home, or a big fat destination wedding for your child, you may have to rely on borrowing. Debt, regardless of its size or purpose, adds stress to one’s life.
Compare that to having enough cash in your bank account to cover all of these expenses. Knowing you do not have to borrow to fulfill your financial objectives gives you peace of mind and independence. That is made feasible through goal-based investment.
Baby steps towards your goals
Before anything, in order to make goal-based investments, you have to take baby steps by identifying the goals. Goals should be SMART — specific, measurable, attainable, relevant, and time-bound. To budget accordingly, once the goals have been established, you should further divide them into short-term, medium-term, and long-term goals.
Last but not least, you have to calculate the future worth of each goal, remembering to factor in inflation. Once you’ve determined your target amount, determine how much time you have to achieve it. After you’ve completed all of this, you may realize how tension-free your life is now than before. So, what are you waiting for? Set the first goal.
The author, Akhilesh Gupta, is the Chief Investment Officer of Aviva India.
(Edited by: Shoma Bhattacharjee)