Why Should You Setup Your Goals Before Investing?
Most of us have a number of goals to achieve, which may be short-term, medium-term, or long-term. But we never plan our finances according to them. Although there is a growing awareness about investing, we are often indifferent to the reasons for which we invest. Investment is a long-term activity; it is important to make investment decisions after thorough planning and understanding of the investment options available in the market.
Goal-based investing helps your map out your future plans and achieve them by investing in options specific to each goal’s requirements. This investment strategy helps you to achieve yours goals in time and reduces your dependence on your savings and loan debts.
Why is goal-based investment important?
Determining and prioritizing your goals will help you invest better in the volatile market. Read on to know how:
- Makes your vision clear about your future plans
- Helps you to create an investment strategy
- Keeps you motivated to achieve your investment goals
- Helps you overcome lack of savings
- Lets you avoid debt
1. Makes your vision clear about your future plans
Financial planning is about setting financial goals, which will make your long-term vision clear. You will be able to invest smoothly across different stages of life and in various instruments. For instance, if your vision is to own a villa in the next ten years, your financial goal will comprise saving and investing in long-term mutual funds, which have low risk and high return. On the other hand, if you just want to make enough money to be able to go on an international vacation, then investing in short-term liquid funds will be ideal.
2. Helps you to create an investment strategy
With financial goals in place, you will be able to formulate an effective investment strategy. For a short-term goal, you will need to choose an aggressive investment plan. For long-term goals which have a span of 5-7 years, you may choose a diversified growth option that will help you grow your wealth.
3. Keeps you motivated to achieve your investment goals
When you have your goals in place, you will be saving for a tangible outcome. When you attach an outcome to your savings, you will be motivated to save and work harder to attain your goals. For instance, if you plan to invest so as to be able to buy your first car within the next two years, your enthusiasm to save and invest will be high.
4. Helps you overcome lack of savings
With financial planning, you will be able to know the amount you are required to save each month in order to reach your preset goals. This will stop you from over-spending as well as under-saving as you will think about your goals in advance and work towards it.
5. Lets you avoid debt
A goal-based investment will help you avoid debts. If you are working to achieve a goal, you will plan better, save more, and invest more. You will stop impulse purchases, restrict yourself from being extravagant, and not take a debt which will have to be repaid in the near future. Remember, if you have a debt on you, there will be a monthly outflow and you will be required to repay the same on time.
How to map your investments to a goal?
Once you understand the importance of setting goals for financial achievement, you will have to work on the same to achieve your goals. Here are the three main things you need to do while setting up a financial plan:
- Prioritize your financial goals
- Create a mutual fund investment strategy
- Start saving and achieving your targets
1. Prioritize your financial goals
The first step is to prioritize your goals. You may divide your goals into short-term objectives, which may be achieved within a period of three years, medium-term goals which may be set for three to five years, and long-term goals which may be achieved after a period of five years. If you have multiple goals in each category, you need to rank them according to their priority. Based on your current financial situation, you may look out for the best investment options to meet your goals.
2. Create a mutual fund investment strategy
Prepare an investment strategy based on your goals. Look for the best investment options and invest according to your risk appetite and the tenure you are looking for. For short-term goals, opt for aggressive options, whereas for long-term goals, you will have to pick risk-free investment instruments that grow over a long period of time. Compare the risk and return on each investment option and make your choice.
3. Start saving and achieving your targets
Lastly, you need to start saving in order to invest in the chosen asset class. The first step towards achieving long-term financial goals is to start with regular saving and making the right choice of investment. Take small steps, go for a systematic investment plan (SIP), and start saving each month in order to invest enough for your financial goals.
The financial planning process should be rational and well-thought-out. Set goals which are practical and possible to achieve. Also, it is important to choose products that fit your time horizon. At Angel Bee, we direct you to the right investment options. The user-friendly mobile app will offer customized investment recommendations for you. The app has an ARQ investment engine, which functions on algorithms and is free of human bias. Download the Angel Bee app today and build a healthy portfolio.