Financial goals; financial planning,…. do all these concepts bore or scare you? Well; maybe you need a change of perspective. If you are already making some form of investments; whether it be in stock market, mutual funds, fixed deposit etc; financial goal is taking it one step further and making sure any investment you make is following a set strategy in line with the priorities of your life. How does that help? In two simple ways.
- When you invest for a goal which is 5 or 10 years in future; it will shield you from the irrational behavior of the herd which is often driven by euphoria or panic. Generally, people without clearly defined goals or priorities will lack the confidence necessary to adhere to a long-term strategy.
- You are not doing adhoc investments with a pre fixed mindset of achieving a particular return but rather towards achieving your goal. Investment plans based on the hope that past performance will prevail in the future don’t engender confidence, nor does the notion of planning towards the accumulation of a capital need using unrealistic or outdated assumptions.
What kind of financial goals should I set or what do I need 10, 20 or 30 years in future? Have you ever wondered about the same and felt confused, stuck and worried? Well; if you have felt the same; you are worrying about the right thing.
We view goals as life’s destinations, whether it is where you want to be at the end of the day or at some point in the distant future. But there is a big difference between a clearly stated goal with a plan to achieve it, and a hope or a pipe dream that merely swirls around in your head. If a goal is not perceived as realistic or achievable, then it‘s nothing more than a hopeful aspiration without any real value. Goals need to be well-defined, quantified, and have real intrinsic value in order to inspire a thoughtfully conceived plan of action. Anything less, and it will remain a hope; and hope is not a strategy. To define your goals; you probably need to do some self analysis, decide your priorities and define what will be important to you in the next 5, 10 or 20 years. Some major goals can be -
- Retirement / financial independence - There’s this whole debate about how retirement and financial independence are one and the same thing. But if you have ever thought about not depending on a fixed job to to live your life; its a good goal to plan for.
- House purchase - Buying a dream home is on everyone wish list. Planning for down payment 5 years down the line or buying a home 20 years down the line is
- Emergency fund - In a fragile job market and with a large family, emergency funds are putting aside 3 or 6 months of your salary in liquid funds. These funds are generally very safe with returns better than a savings account or PF and you can take out this money whenever you want.
Apart from this, there can be other priorities too, which again can be completely based on what you want from life. Also, your goals can and should be reviewed frequently so that the necessary adjustments can be made to keep you on the right road when life throws you a curve. If you are worried about making wrong planning decisions; you should not worry too much; its something you can always tweak and adjust. But it’s more important to have goals than not having any.
In investment planning, your goals and objectives become your investment benchmarks, which are an absolute measure of your investment strategy performance. This allows you make investment decisions based on where you are in relation to your objectives rather than on market returns which are beyond your control.
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