Invest With Goals In Mind

Chirag Porecha, 

All of us have responsibilities. There is always something that needs to be done. And, most of these responsibilities are related to money. But, planning to ‘save more’ or ‘cut expenses’ are not great ways to carry out financial responsibilities. Financial planning is about life goals. You want to get married in a grand fashion. The European trip with the family has to be done. That SUV, that dream beach house...it’s a long list of to do’s. And, when you achieve all this, you have to think of saving for your retirement fund. Goal-based financial planning is an approach that aims to help you meet personal and lifestyle goals in a straightforward and simple way.

Goals Matter

Many view their investment portfolio as mere numbers. These numbers can go up, they can go down. But, numbers are just a means to an end. The truth is we do not see our investments for what they really are. Money is not simply numbers on a screen. Having money makes sense for a goal. Yes, money matters because goals matter. When financial planning is done with a pure focus on goals, everything starts to fall in place. Aiming for your child’s college education corpus or an income for your retirement years requires a strategy that helps you meet those goals. This is the essence of goal-based investing.

Goals force us to think of investments as each having its own sacred purpose. A rupee saved in this account will pay for your retirement income post 65 years of age. Another account is for funding your daughter’s marriage 20 years from now. When a goal is spelled out, the journey to achieving that goal is automatically started. Each goal has its own amount of acceptable risk. Each goal has its own time horizon. Each goal has its own strategy.

Planning for Goals

A goal-based financial planning process has quite a few advantages over other approaches. Understanding your life’s priorities: Take time to learn about your life goals and priorities. Once they are known and understood, you can work to achieve them. Goals are long-term, and hence a goal-based financial plan essentially makes you think long-term. Losing money this quarter isn’t that important if you are targeting 20 years. Blueprint of your financial plan: Aim to define and prioritize your life’s goals. Then, fine-tune them to account for your risk tolerance, time horizon, and investment objectives. In this way, you can formulate a plan to reach your goals. Staying on track: Our goals may not change, but circumstances do. A goal-based financial approach ensures that you always remain on track. Financial markets may see ups and downs, but when your goal is set, you have all the incentive to stay on track. This mindset will help measure your progress toward reaching your goals and tinker with your plan if required.

Ignoring the Noise

When it comes to investing, people are concerned about whether their investments are doing well. They compare their investments with others or with a benchmark. But when you ask them about whether their investments are on track to achieve their financial goals, they would be clueless. The sad reality is that most people don’t invest in goals. Everybody knows one day they will have to retire. Every parent with children knows there will come a day when their children will have to be sent for higher education. All such plans require you to make more money. Without any specific targets, all these plans fall by the wayside. People have to learn to ignore the noise and focus on real things. Investing to become rich is a vague plan. Investing to have Rs 5 crore in 25 years – now that’s a specific goal!

There are four key questions that come with every goal:

 How much you need to achieve this goal today?
 How much more will the goal cost in the future?
 How much time is left to save and invest for the goal?
 How much you need to invest to achieve the goal?

It is okay if you do not know the answers to them. But you can start finding the answers. The bottomline is that goal-based financial planning is not about being the best investor in the world. It is about fulfilling your life’s financial goals within time and without taking undue risks. So, start chasing your goals today 

The writer is a Managing Director, Life Plus LLP n Email id : chirag@lifeplus.in