How to plan your financial goals for the future? Know here
From buying a beach house, owning a luxury car to travelling abroad – there are several aspirations in life that you want to accomplish. However, at times you stop yourself from dreamingas you assume such aspirations are far-fetched. However, you can attain all such dreams by turning them into financial goals. With the help of an experienced goal planner and prudent online goal-based calculator, you can attain your financial goals with ease.
Here’s a stepwise approach you must follow to meet your financial goals –
Prepare an emergency fund before beginning your investments for your financial goals
An emergency fund helps when in financial exigencies like severe illness or income loss. Before beginning your investments for your goals, ensure to form an adequate fund to meet your mandatory expenses of at least 6 months. Building an adequate emergency fund can prevent you from redeeming your investments earmarked for your financial goals to meet your financial exigencies.
Know your financial goals
After you have prepared your emergency fund, it is time for you to move on to the next step of setting your financial goals. Financial goals are money-linked targets to attain your long-term and short-term financial goals. Long-term goals, as the name suggests, have a longtime horizon of 5 years and above while short-term goals are instant goals with a shorter timeframe of up to 3 years. Instances of long-term goals include corpus accumulation for your child’s marriage, your retirement, purchase of a new home, etc. while short-term goals include corpus accumulation for the purchase of expensive commodities, trips abroad, emergency funds, etc.
Ensure to identify both your long-term and short-term goals. Next, prioritise your financial goals. Remember that goal prioritization may differ from one individual to another and depends on different parameters like your age, income, marital status, monthly investible, etc. For example, the financial goal of creating a corpus for marriage or planning an abroad trip may be more relevant for individuals in their mid-20s while for those in their late 30s or early 40s, forming a retirement corpus, corpus for child’s higher education or marriage would be of greater priority.
To better prioritise your financial goals, you may even take the help of a goal-oriented planner. With the help of a goal planner, you can also estimate the corpus required for attaining each of your goals. To compute your corpus and figure out a better investment instrument for each goal, you may also use an online goal-based calculator.
Compute your monthly contribution for meeting your financial goals
After figuring out your goal, you must ensure to compute the monthly contribution for attaining those goals. Start by calculating the future goal value. Ensure to factor in inflation while computing the future value of every goal. You can use the online SIP calculator to understand the required monthly contribution for attaining such goals by assuming a return rate for the selected asset class. Knowing your monthly contribution value for achieving your goals will help you budget your expenses and other investments better.
Examine your risk appetite
As distinct investment products have varying risk levels, you must consider your liquidity, income stability and investment time frame of your distinct financial goals to decide your risk appetite. Knowing your risk appetite will allow you to determine your investment product. For example, if you want to take a higher risk, you might consider investing a higher proportion of your investment in an equity mutual fund. Similarly, if you are facing income uncertainties, you might set aside a bigger proportion of your investment in debt mutual funds or other fixed asset classes. Awareness regarding your risk appetite can also allow you to decide your asset allocation strategy better.
Ideally, goal planners may advise you to invest your funds for long-term goals in equity mutual funds as equity as an asset class has the potential to yield higher returns over the long term. For short-term financial goals, it is best to go for short-term debt mutual funds or fixed deposits because of their return assurance and capital protection features.
Bottom line
Whether you want to buy a dream car or home or go on a trip abroad, to meet such aspirations, you must ensure to convert them into goals and work hard as listed above to attain them within the estimated time frame.
