Goal based planning

Generally, the start of an investment is by a statement like “I have Rs.10,000, where should I invest?”, “Which is the best Mutual Fund to invest in?”, “Which share should I invest in for the long term?”

Logically, before you make any investment at all, you should list down all the goals that you want to achieve. Goals are divided into three groups:

1. Essential goals

This would comprise of basic necessities –

• An emergency reserve equal to 3 – month expenses.
• Medical insurance.
• Life insurance (term policy only) if there are dependents.
• Saving for retirement.
• Paying off credit card debt

2. Important goals

This would comprise of the following –

• Child’s higher education.
• Self upgradation education.
• Child’s marriage.
• First house.
• First car.

3. Aspirational goals

This would comprise of the following –

• Own business.
• Foreign vacations.
• Bigger house.
• Second car.

These goals will vary from person to person depending on their financial status and their stage in life. Goal based investing is one of the most powerful ways to have an overview of what you want and where you are on the journey to financial freedom.