What is Goal-Based Planning and its Importance

What is Goal-Based Planning and its Importance

What exactly Goal-Based planning is?

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:-

  • Setting up goals: You must lay-out all of your financial goals in different stages of life accordingly. Also, you must estimate how much money you require for each of that goal and always factor in inflation, especially for the long term financial goals.
  • Expense the Budgeting: Apart from the first point, you should also assess your post-tax income, your expenses, assets, and liabilities while creation your budget. Once you have a prepared budget, you will know how much you can save and invest moving systematically for the financial goals.
  • Assessing up your risk appetite: It is an important step in financial planning because you must take up the right amount of risk to achieve the financial goals. If you take too much risk, it may lose your hard-earned money due to adverse situations at the time you need it. If you take a very little risk, it may not be able to get sufficient returns to meet your goals. The risk appetite depends upon your age, stage of life, timelines of goals, and financial situation. You should always invest according to considering your risk appetite.
  • Asset allocation according to the goals and risk appetite: Returns and Risks are interrelated – ex the higher risk, higher the returns in the long term, and vice versa. Like the different asset classes have various risk profiles, like equity has a higher risk profile compared to gold or fixed income. Remember, for every different financial goal, you must invest in the right asset class depending on the goal and risk appetite. Like, you can invest in the equities for long term goals like for children’s higher education and your retirement.
  • Preparing up an investment plan: The final step of the financial planning process is this. After you know your goals, risk appetite, and also asset allocation profile, the rest of the part is to simply calculate up how much do you need to save and invest based on the goal amount, goal horizons, and expected return on investment based on your asset allocation. Sometimes during this, you might realize that have to save more and cut down some misc expenses. Do not feel disheartened if you are not able to save more. You should start with whatever you can save first. Over a period of time, as your income goes up, you can save and invest a lot more. You can also use up the facilities like the Top-up SIPs etc, to increase your investments over time and achieve your goals.

Advantages of having a Financial Goal while Investing:

  • Saving and investing more for your goals: It comes naturally that the investors who save and invest more are likely to create more wealth. Attaching up investments to the goals, instills a greater determination, and doing that is what is required to achieve the goals. It has often been seen that families that practice goal-based investing save and invest more.
  • Discipline in investing: Disciplined investing like sticking up to your SIPs irrespective of the market conditions, or adhering to your asset allocation, and regular rebalancing of the portfolio, etc., are quite essential for achieving success. Since there is an emotional attachment attached to the financial goals, investors are much more likely to be much more disciplined in goal-based investing.
  • Helps you in the reduction of debt and to be debt-free: The cost of the debt can also be a huge burden on your savings and harm up your long term financial interests. So if you practice goal-based investing, you can fund up that big-ticket spending like the vacations, buying and upgrading up of the vehicles, payment for the houses, etc. from the investments to reduce the debt burden and interest payments thereof.
  • Sustainably improves the lifestyle: Despite rising disposable incomes, the average household debt in India is rising. It shows that the investors are funding their lifestyles through their credit cards, personal loans, etc. Debt funded lifestyle improvements cannot be sustainable. And sometimes, it is seen that the parents also spend up a bulk of their savings on the children’s higher education and later compromises up on lifestyle to save up for their retirement. So if you also practice goal-based investing, you can sustainably improve the lifestyle, without relying on debt or compromising on other financial goals.
  • Saving of taxes: Having up an investment plan can help you to save the taxes under section 80C and you will also invest in the most tax-efficient investment options according to your financial goals and asset allocation.

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.