Identifying and Defining Financial Goals; Guiding Map in Your Investment Journey

Identifying and Defining Financial Goals; Guiding Map in Your Investment Journey

When you know your destination, it’s easy to travel! The same is applicable in the investment world as well, the first step in a financial planning journey is identifying and defining your financial goals, it not only gives a clear picture of your monetary needs but also helps in setting a correct asset allocation and choosing the right investment products - acting as a map to a traveller as our goals are already identified.

If you have not defined your goals yet, it is never late to be financially fit.


What are financial Goals?

Financial goals are monetary amounts allocated to specific needs; creating a plan to achieve these goals is the next part of an individual’s financial planning journey.


Different types of financial goals:

Based on the tenure left to meet a monetary obligation, financial goals are segregated as follows:

  1. Near–Term Financial Goals:

    The near-term financial goals are the monetary obligations to be fulfilled in the next 12 months and as the tenure is smaller to achieve these goals, mostly they consume a major portion of your regular income. By segregating the near-term goals, it becomes easy for an individual to estimate, what portion of the savings is to be kept aside for meeting these financial obligations

    Some of the examples of near-term financial goals-:

    1. Servicing your car in the next month

    2. Purchasing a gift for a friend on a special occasion

    3. Insurance premium payment.

  2. Short-Term Financial Goals:

    The time span of Short-Term financial goals of individuals ranges from 1 to 3 years, some examples of these goals are minor repairs at home, purchasing a smartphone or buying a new refrigerator, etc. Planning these goals require investment vehicles that can give some additional returns than a savings bank account and must be equipped with investments with an ability to protect the capital also.

  3. Mid-Term Financial Goals:

    Though identifying the mid-term financial goals is a little confusing task, listing the goals that fall under 3 to 6 years could make it easier. Pre-paying an existing loan, shifting to another flat, and buying a new car are some examples of these goals. As the tenure range is increased for these kinds of goals, your investment vehicle chosen to achieve these goals should be able to beat the inflation and at the same time, they should give marginal protection to your capital as well.

  4. Long-Term Financial Goals:

    Any monetary obligation that is aimed to be achieved after 5 to 7 years of tenure from today could be considered a long-term goal of an individual. Examples of these goals include creating a corpus for your child’s higher education, buying a villa, and savings to achieve financial freedom in the next 15 years. To meet such kinds of goals, it is ideal to choose investments vehicles such as Direct Equities or Equity mutual funds.


Advantages of Identifying and Segregating Goals:

  1. Deriving the ideal asset allocation of an investor

  2. Choosing the right investment products to meet your financial obligations

  3. Clarity on returns expected from the investment

  4. Reducing the market volatility risk

  5. Creating an effective financial plan

  6. Reducing stress due to last-minute hustle and bustle created during the arrangement of funds


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