29 September 2020 | 5 min read

5 Reasons To Go For Goal-Based Financial Planning


“Risk comes from not knowing what you are doing.” – Warren Buffet

No one quite sums it up than the man who is renowned as the most successful investor in the world. Whether it is investing or literally any aspect of your life (college, job and retirement), you are just grasping at straws if you don’t have both short term and long-term goals.

This is especially true when it comes to financial goal setting. To lead a stress-free life, you need financial stability and that happens when you allocate your assets in the right investment vehicles. To do this, you can either go for ad-hoc investing, i.e., putting all your money in one fund (mostly retirement) and carving out money as and when needed for other goals from this single fund.

As you can already see, this approach sounds a little too easy and not at all beneficial. This is why goal-based financial planning and investment is absolutely necessary. With each milestone of life, you will have new priorities to take care of like buying a car, house, sending your kids to college and more. All of these require investment, but which one should you put on high priority and when is what you get to decide when you take the goal-based approach.

In a nutshell, a clear and single-minded approach is as necessary to reap the maximum benefits of your investment endeavors as is choosing the right plans

Reasons To Choose Goal-Based Financial Planning

Choose goal based planning

Now that you are acquainted with the concept of goal-based planning, let us walk you through its myriad benefits and of course, the reasons why this should be on your radar.

1. You Will Instantly Feel That All Your Goals Are Achievable

One of the biggest benefits of financial planning is how defined and precise your priorities become. Once you sit down and do the math, you will know when you have to start putting away money for your child’s education, your retirement fund and also squeeze in extra money for that big vacation you are planning to take next year.

The simple act of financial planning and analysis makes everything transparent and all your daunting goals will feel achievable in no time.

2. Your Saving Becomes Tangible

Tangible savings

Once you have a goal-based investment planning in your portfolio, you become more careful about your savings. Instead of just saying that you will save, say 10% of your annual income, you come down to tangible numbers, say, you will put away at 20% (INR 20,000) of your monthly income in your savings and investment profile.

This is also known as mental accounting. The activity of marking specific amount of money for a specific target. In this case, for the investments you have so carefully charted out for yourselves.

3. Allocating The Right Assets Becomes Easy

Allocate right assets
Asset allocation is an integral part of any type of investment. It becomes easier when you have your short term and long-term goals clearly jotted down. And with the right financial planning and analysis, you also become aware of the risk you want to take with each fund. For instance, creating a retirement corpus that you will use 30 years down the line will require small investment right now, say for INR 2,000 per month. However, if you plan to pay the down payment on your first home in two years, you will need to invest a much larger sum, say INR 15,000 per month.

The risk involved with the investment for home loan will have to be low because you don’t want to lose money right now. And for the retirement corpus, you can go for high risk funds like equity which are bound to give more returns in the long future.

4. Spend Without Guilt

Spend without guilt
Once you have allocated all the money for your different investment vehicles, the surplus you are left with every month is the amount you can spend sans any guilt. When we are slogging off work and working diligently on each project, we do have a certain lifestyle in mind we want for ourselves, and with proper goal based financial planning you can enjoy it all.

5. You Set Realistic Targets

Set targets
A subtle and often overlooked benefit of financial planning is that you don’t under or overshoot your targets. Whether it is sending your kid to college or creating an emergency fund for yourself, you have each goal marked out to the tee and once you have factored in inflation and the right investment approach, your targets become much more realistic.

What Are The Best Funds For Goal Based Financial Planning?

Funds For Goal Based Financial Planning

This is the optimal question to ask when you are approaching your finances in a goal-based manner. However, when it comes to systematic and focused financial planning, the one-size fits all approach goes out of the window.

For instance, let’s take the example of a person named Anamika Banerjee. She is currently earning INR 80,000 per month. She is planning to buy a house so that her parents can move in with her. The house costs her INR 24,00,000 and the monthly EMI she is paying for the same is around INR 25,000. Now let us look at the monthly expenditure of Anamika.

House Rent and Other Expenses – INR 15,000

Home Loan EMI – INR 25,000

Personal Expenses – INR 10,000

Insurance and other Investment – INR 7,000

Thus, out of the entire income Anamika earns per month, she is left with INR 23,000.

Anamika has done the right financial based planning when it comes to her home loan EMI, insurance, and other investment premiums. She is saving for the right goals at the right time. However, given that Anamika is 27 years old, she should also start putting aside money for her retirement. When you start saving early for this goal, you can go for ELSS that not only allow you to invest in equity but help in saving taxes.

Apart from this, other modes of investment that can come in handy are Fixed Deposit , Recurring Deposit and SIP that are invested in large-cap funds for a significant period of time. Depending on your goal and target, there are different options that yield good returns. Do the research and decide what suits your financial makeup best.




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