Why is it important to have long-term financial goals?

Authored by Prashant Sawant, Co-Founder, Catalyst Wealth 

Everyone wants to have a safe and happy future. We all have a zest for achieving our goals in life. It is not easy; it takes a lot of hard work and time for us to achieve it. Similarly, financial goals that we set for ourselves for a longer period of time are termed long-term financial goals. Long-term goals are a big commitment. Investing and locking a certain amount of money into stocks, mutual funds, and securities for years are termed long-term investments. The return you get from these will be satisfying. While setting such type of goals, you will become better decisions makers; it will motivate you daily and give you a purpose to work. Some of the long-term financial goals could be investing in retirement funds, saving for a child's future, starting a business, buying a house, etc. 

It is important to have a diversified portfolio, which involves investing in stocks, bonds, mutual funds and equity funds, gold, PPF, EPF, and real estate. 

How to budget and save for the financial goal?

You need to know and understand your income. Depending on the amount of money you spend and save from your income will decide how much can be invested in your financial goals. Setting the goal and choosing the start point of saving will help you achieve your goals much earlier. Using a 50/30/20 budgeting system is the best to save and march towards your financial goals. 

Benefits of long-term financial goals:

Comparatively low risk 

Long-term investments are comparatively less risky as compared to short-term investments of losing your money. With long-term investments, the price of stocks & bonds increases and also gives you time to balance losses, if accrued. 

Less stressful 

When you are investing for the long term, you don't have to keep an eye on the market on a continuous basis. Once you have invested, you only have to go through this on a yearly basis. 

The power of compounding 

A system, where after a period of time your investment grows through interest earned on the principal amount and accrued amount, is called compounding. Investments grow multi-fold through this process if invested properly. 

Saves taxes 

Long-term goals help you save a lot more taxes compared to short-term financial goals. 

For the short-term, you need to give 20 per cent – 30 per cent of tax on gained capital wherein, in the longer term, you have to pay around 5 per cent -15 per cent on capital gains.