Is goal based financial planning the right way?

Mahesh Pai lists out a few steps that one has to take in order to meet their financial goals

Goal based planning is the process of prioritising a person’s financial goals and determining the optimal plan to fund them; this plan will help in achieving multiple goals across different stages of life. Some of the common goals would be children’s education, children’s marriage, retirement planning, and estate planning. And of course, there would be a few people who would also add travel, building a home etc as their goals. A goal of retiring at a certain age and traveling the world is merely a starting point. Meaningful planning then probes deeper into where you hope to travel, how many trips you would like to take each year, and who would be traveling with you. Once you list down all your goals, it becomes much easier to then prioritise which of them are essential needs, which are important wants, and which are aspirational wishes.

Why is it needed?
Many investors think that saving money will ensure financial security and success in achieving goals. However, saving money is not enough. We have multiple goals in life. To achieve your long term financial goals, you need to grow your money by investing it. Your money will grow more, if you invest over a longer period of time – this is known as power of compounding. Financial planning will help you estimate how you need to save for different goals, where to invest your savings and for how long to invest.
Financial planning also prepares you for unexpected adversities e.g. unexpected loss of employment, serious illnesses, untimely death etc, which may put your and your family’s financial goals at risk. Having a contingency fund in liquid investments, adequate health, and life insurance covers are also part of financial planning.
In investing, having well-defined financial goals help tell you the following:
• How much money you need to achieve this goal today?
• How much more will this goal cost in future (considering inflation)?
• How much time is left to save and invest for the goal?
• How much you need to invest (regularly or one time) to achieve the goal?
And these are important questions as it allows you to focus and invest with discipline.
There are a few steps involved for goal based planning.
1. Setting goals: Laying out all the goals in life and estimating how much money would be needed to fulfil those goals
2. Budgeting your expenses: One needs to assess how much assets and liabilities they have and come to a conclusion on how much they can afford to invest after all the monthly expenses and paying tax.
3. Calculating your risk appetite: Risk and returns are inter-related, as per ones age they need to calculate how much risk they can take and how long they can stay invested to reap the best returns. It is important to determine long term and short term goals under this parameter.
4. Asset allocation: Different assets have different risk profiles. For example, equity has a higher risk profile compared to gold or fixed deposits. Remember to invest in different asset classes for different goals based on your time horizon.
5. Preparing the plan: This is the final step of the process, once you list down and segregate the above four steps the last step becomes very easy and convenient to understand and make the plan. Sometimes you will realise that you need to save/invest more to achieve your goals and you may not have that kind of income right away but you should always start with what you can right now. Don’t wait for your income to increase and then start the investment plan, it doesn’t work that way.

Discipline and Focus are essential in achieving Financial Success
Focus and discipline are two most important attributes for achieving success in any aspect of life. Focus will prevent from getting distracted from your goal and discipline is how you maintain focus as you work towards your goal. After a plan is made the execution at that very moment is crucial, sometimes a plan that is made today may not be the ideal plan after 6 months or 1 year. The earlier you start investing, irrespective of amounts, higher is your chance of succeeding in your financial goals. This plan should also be reviewed and rectified if needed at frequent intervals to achieve the goals and ensure maximum returns. Having a goal-based financial plan, saving, and investing according to your financial plans, will help you ensure financial security and achieve different goals in a time-bound way. So make a plan as per your goals or consult a professional who will take you through this process and achieve financial success.


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