What financial goals should you be thinking about?
Anything you want to do in your life can usually be quantified in terms of the money that you will need to spend on it. All goals have a monetary value attached to them. For instance, if you want to buy a house in
Foundation goals should be given first priority when creating a financial plan. These are common to most people. Foundation goals include:
- Housing need for shelter
- Basic life insurance and health insurance for protection
- Having enough savings to pay for your children’s school and college expenses
- Having enough savings to pay for your children’s marriage expenses
- Maintaining an emergency fund to be able to meet any unexpected expenditure
Depending on your means you have to prioritize as to which goals are most important for you and start saving and investing to meet those goals. Just like a building is constructed on a stable foundation, your financial condition should also be built on a stable foundation.
Once your basic needs are met you can start to think about your lifestyle goals. These goals are somewhat discretionary and could differ greatly from person to person depending upon the type of lifestyle you want for yourself and family. Lifestyle goals are highly personal and are often dependent upon what dreams you have. Examples of lifestyle goals include:
- Owning a vacation home in a hill station
- Buying the latest digital camera
- Taking a cruise in Europe as opposed to holidaying in
How can you know how much to save or borrow to meet your goals and what to invest in?
First, it is important to quantify your goals. You must estimate how much it is going to cost to achieve your goals. For example, a buying a home in India could cost Rs. 20 lakhs or Rs. 40 lakhs or more depending on what you want.
Second, it is important to know at what point in the future do you want to achieve your goals. Your goals could be short-term in nature (within less than 12 months from now), e.g., buying a TV, prepaying your car loan or creating a contingency fund for an emergency. On the other hand, your goals could be medium term to long term, e.g., like buying a bigger home three years from now, providing for your daughter’s college education twelve years from today and having a retirement corpus 25 years hence.
Once you have quantified your goals and know their time horizon, then based on your risk profile, you can select the appropriate savings and investment instruments and assess your borrowing needs.
