How do I set up a goal and invest?

Shoot for the moon. Even if you miss, you'll land among stars! While this is true for many cases, this is not what you would want to do when you are planning your finances. There is a chance that you might not land among the stars; improper planning could land you back to square one or worse in a ruined financial state.

Before you start investing, you need to define your goal for which you are saving for. This is because to save for the future, you are cutting back on your spending now. This sacrifice must not be in vain; you need to get an appropriate reward for this sacrifice. Goal-based investing is just what would help you.

Type of goals

No matter how different and unique your goals are, you are bound to find the correct financial instrument. However, the first step of successful planning is to set the goal. What are the common goals that many of you could relate to?

• Build sufficient amount for retirement

• Buy a vacation home/Save a down payment for a home

• Create an income stream after retirement

• Start a new business

• Pay for your wedding

• Save for your children’s education/marriage

• Take a special vacation

• All of the above

Timeline to achieve the goal

Setting a goal is important as they help you define the timeline in which you need to achieve the goals. For example, paying for your vacation, creating a constant income stream post-retirement, or your wedding could be a short-term goal while planning for your retirement could be a long-term goal.

Risk Tolerance

Your goals will also help you determine your risk tolerance. Your age will also play a factor in determining your risk tolerance. If you are in early stages of your career, you can afford to take more risks as you might not have been married. However, if you are a businessman and have a family dependent on you, you might not want to be too adventurous.

Liquidity Requirements

Your investment goals will also determine your liquidity requirements. If you are investing post having an emergency fund, you might want to invest in an investment option that would not provide you instant liquidity such as real estate. However, if you do not have an emergency fund, you might want to invest in mutual funds to gain while having the option of quick liquidity.

4 Tips to set your goals

Setting appropriate goals can be difficult. Consider the following tips before setting up your goals.

1. Know why you are investing.

• You can set the right goals if you can point to a specific reason for investing.

• This will also provide you with a way to stay motivated.

2. Be realistic:

• Do not grandly proclaim that you can invest Rs.5000 while you aren’t even sure of the groceries.

• Consider your financial situation and set achievable goals.

3. Break it down:

• Chip down your investment goals into easy milestones.

• Start out small and increase gradually.

4. Start simple:

• If you are unsure whether you can really stick to the plan, start with a simple plan.

• Also, begin with simple SIPs and do not assume that you know everything about equities.

To sum it up

Having an aim in life is important. However, having a goal while financial planning is furthermore important. If you follow the above-mentioned tips, you could better align your goals with your needs.