Goal-based financial planning is a method that helps you in achieving multiple and added goals across different stages of your life. Some of the common life-stage goals of the investors can be to buy a new house, saving for higher education and the marriage of children, planning for retirement, and proffering equity or estate to loved ones. Apart from these goals, some of the clients may also have many other specific goals catering to their individual needs and yearnings like planning up a domestic or foreign vacation, purchasing up a vacation home, preserving a corpus to start a business, saving money for their early retirement, etc. Goal-based planning, in other words, is a process of defining the different goals and quantifying those particular goals in factoring up the inflation and having an advanced endowment plan to meet these goals.
Why is Goal-Based planning required?
Having a Goal-based financial plan, and then saving and investing the money according to that financial plan will help in ensuring financial security and will help to achieve various goals in a time-bound way. However, many investors think that saving money will surely ensure financial security and will bring success in achieving financial goals. However, just saving money is not enough. We have various goals in life. To achieve long-term financial goals, you need to invest the money for proper allocation of it. Money grows more if you invest it for over a longer period of time, a said and known as the power of compounding. Financial planning will help you in estimating how much do you need to save for your various goals, and where to invest those savings, and also how long you need to invest.
It also prepares you against the unexpected adversities like an unexpected loss of employment, or untimely death, etc, that may put yours and your family’s financial stability and goals at risk. Thus, having up a contingency fund in liquid investments, and adequate health and life insurance covers are also part of financial planning.
What are the steps involved in Goal-Based planning?
Usually, Goal-based financial planning comes as a six-step process:-
Advantages of having a Financial Goal while Investing:
Why and how should you stay focused?
We have mentioned earlier that discipline is quite essential to achieve financial success. Focus and discipline are two of the most important attributes for achieving success in any walk of life. Focus is an emotional quality that prevents you up from getting distracted from the goals. Discipline is a quality of how you maintain up the focus as you work towards your goal. Focus and discipline are two qualities required for the planning and execution of the financial goals.
Like when you plan for a holiday, you are focused on the destination, mode of transport, duration of the holiday, and planning to the minutest level to make the best of the place we choose. Now, most of the family persons will agree that careful planning makes the holidays much more enjoyable. So you will be able to save costs by booking the tickets and hotels earlier, knowing what to do, you will have sufficient time to enjoy the sights and experiences, and will avoid the inconveniences for your family, etc.
Talking about a similar incident, when you think of cooking, you plan on what cuisine you want, the ingredients, style of cooking, garnishing, serving it, and then finally devouring it. It involves a good amount of planning, assuming that knowing the recipe, prepping the vegetables, making the food, having sufficient time for the masala and vegetables to cook properly, and then finally serving it to everyone. Going up without a plan makes it a recipe for disaster ex., scrambling at the last minute, or risking an injury to your fingers due to a hurry, burnt food, and then not having enough time to cook the dish properly.
Similar to the traveling and cooking examples, Goal-planning is crucial to success for your financial goals. Not having up a financial plan will lead you to an undesirable experience and much more serious consequences other than the two examples listed above. Hence the importance of goal-based financial planning is high.
In this article, we have discussed why you need to have a goal-based financial plan. It is also equally important for the investors to understand that the investment plan on paper and a spreadsheet is quite useless unless you start executing it. The earlier you start investing, the higher is the chance of succeeding in the financial goals. It’s also important to understand that over a period of time your financial situation and goals will also change. It’s always prudent to regularly see and adjust your financial plans.
Goal-based financial planning in other words is simply a structured approach to goal-based investing which can ensure a higher chance of success in meeting the financial goals. The most important success factor in planning is the commitment to the plan for financial security. Make an investment plan as per your to your goals.