As investors you are often told that investments are done with the aim of fulfilling personal financial goals. This is often said with the assumption that you have a financial goal or goals to fulfill. The idea of having personal goals is not just about a list of goals you want to fulfill. It is because having goals serve as personal motivation to continue the investments, ending in financial fulfillment of the goal. However, financial goals are more than just a list of goals. Goals should be accompanied by a time period within which the investor seeks its fulfillment. The time period is crucial because it determines the amount to be invested and allows an investor to determine whether the goal is a long term, mid term or short term goal. You may often get bogged down to see so many investors investing for various personal goals while you are still trying to figure the goals and rank them in the list of importance. Let us take a look at some of the widely considered important personal goals that investors often invest for.
Staying Ahead of Inflation
Inflation slowly eats in to your investments making your accumulated amount look small compared to your needs. This is the most important of all financial goals because this goal dictates that your investments must generate inflation adjusted returns. It also ensures that an investor reflects upon the present and future cost of the goals. You must have heard your parents talk about the ‘good old days’ where they described how easily they could get things for 50 paise. Presently, we all are witnessing the absence of those 50 paise coins. This is because of the inflation what your parents could purchase for 50 paise we can purchase it for no less than
र 50. The same applies to your goals. The amount that is enough for your household presently will not be enough 10 years down the line. Inflation affects the prices in the economy pushing it upwards with every passing year. Staying up with inflation could be an exasperating task in the present but it definitely is rewarding in the future. Let us see some possible future costs.
Retirement goals are one of the most important long term goals and also the most ignored goal for most investors in India. Retirement goal is the last in the last of personal goal, hence, it is ignored because of the long time horizon that exists between its investment and fulfillment. However, investors fail to take note of one factor and that is mostly all investments can be fulfilled by adjusting your monthly income or by borrowing from your future income in terms of a loan. However, no such provision is allowed for retirement because at this phase you cease to have a regular income. Hence, you will have to sustain with whatever exists in your corpus or find alternative means of income. So ignore the goal of retirement at your own peril. The sooner you start, you will have time by your side and you will be able to make the most of out of small pockets of investment. The magic of time of value of money is such that if you invest small sums for a long period of time you are bound to have more than lump sums invested for a short period of time. This is simply called the time value of money and possible because of the power of compounding. Do not believe me? See it for yourself.
Lifestyle goals are those goals for which we do not plan for, for example eating out with your family in restaurants or a weekend trip to the countryside resort or buying a big car or a foreign holiday. These are often unplanned for and you pay for them with your present funds or your monthly income. Then they are forgotten till another expense comes up. Lifestyle is one of those aspects that often put even the richest in debt because there is no end to what you can aspire for to satisfy your materialistic needs. These goals are often the reason we have piling credit bills and pay interest as high as 36% to 48% per annum and a major reason why we are also unable to save or invest to build a financial future. Hence, beginning of every year, it would be advisable to have a budget for these expenses and try not to exceed those. Have a lifestyle plan like you plan your retirement and start investing a stipulated sum. If you are prone to using credit cards, then remember to pay the bill amount within the given date to avoid late charges, fines or hefty interest. Remember, the aim is to build a sound financial future and not live in an inflated bubble of credit.
Your personal goals have to incorporate the education goals of your children beginning from the rising private school expenses to the college and professional course fees. You need to start thinking even earlier if you wish to send your child out to get a foreign education. There are certain ways in which today’s children are different from what you were when you were a child. You probably did not grow up viewing laptop, gaming console and tablets as a necessity. However, the fortunate or unfortunate truth is your child will view these as necessities. Hence, if you wish you provide these gadgets which are in no way inexpensive, maybe you need to include these in your planning as well. Compared to the goals you are planning for these may look insignificant but a little planning can always take a long way. You can invest an amount as small as
र 500 in SIPs for a short period of three to five years ensuring your entire child’s miscellaneous needs are met.
Medical and Life Goals
We live in an increasingly complex world. If there is one thing we do not account for, it is our health. While we may take excellent care of it we could still find ourselves surrounded by medical bills and prescriptions. We live in an increasingly stressful world and taking chances with one’s health is not an option. Hence, your personal goals should include a medical insurance along with life insurance. Select a term plan which you can afford and give yourself a cover for at least till 70-75 years. Get the adequate medical insurance so that best care does not remain unaffordable to you. You can always increase the insurance cover once your income increases or you grow older for better protection.
Emergency Expenses Goals
This is one of the most ignored goals because one might complain that after spending, and investing there are simply no funds left. However, it is better to have an emergency fund that you might need during extenuating circumstances that looking for money to borrow during pressing situations. Family emergencies, health emergencies, urgent fund needs, we could be bogged down by possibly everything. Investments which you are planning to redeem will interfere with your personal goals and it could take a while for the money to come to your account as well. Hence, have an emergency fund and put small sums of money. Invest that in liquid mutual funds where you could redeem anytime by earning returns and paying no exit loads. This will allow your emergency fund to gather some returns and be well within your reach.
Financial Planning is no child’s play and requires your utmost attention. Hence, have a list of goals and do not invest without any purpose in mind because that will not motivate you enough to stay invested. Personal goals could definitely vary from what has been written as it is largely based on an individual’s needs. Hence, talk to your financial advisor regarding all your various financial goals and how you could possibly channelize your income to fulfill them and lead a good life. Remember no matter how big or small your goals are you have enough. Just have faith, plan, keep investing and remain invested till goals are achieved.