When compared to the old way of saving and investing, the process of financial planning is a bit more organised. The financial plan of every individual is unique since it is based on their goals and its not recommended to follow someone else’s plan. In this blog, we’ll take a deeper look at how to translate your financial dreams into a realistic financial plan:
- Classifying goals based on the time horizon
For a comprehensive plan, it’s crucial to prioritise certain goals above others. Each financial goal might have a varying time span. Therefore, they must be categorised as short-term, medium-term, and long-term. Similarly, the repercussions of failing to achieve certain goals are considerably more severe than others. On the basis of this limitation, goals must be characterised as per their priority, either necessary or optional. we can add time spans for each goal example short term-1-3 years/ medium 3-7 and so on
- Mapping Goals to Your Current Situation
Goals must then be prioritised in relation to the present financial condition and their achievability. This implies that the present savings, investments, and income are examined in relation to the goals, loans and liabilities. Many individuals in this situation have come to terms with the fact that their income is insufficient to support their ideal lifestyle. It’s also possible that they’ll see how achieving one goal—say, buying a fancy car—is significantly affecting their ability to achieve other objectives. The objectives established in the previous stage need to be justified at this point.
- Determining the Priority of Goals
Do you want to accomplish your short-term objectives before tackling long-term ones like housing and retirement savings? you might also start saving for retirement and other objectives while pursuing your short-term aspirations. People set too many short-term ambitions and delay long-term investments. The investment process derails and goals are missed. Hence, based on investor discipline, a particular approach can be chosen.
- Identifying the Appropriate Investment Vehicle
In terms of financial planning, picking the right investment instrument is crucial. Since the objectives & time horizons are defined, this may be accomplished without difficulty. For longer-term goals such as retirement, children’s marriage, Equity as an asset class are mostly preferred. Equity funds are often volatile in the short term. However, it has earned one of the greatest long-term rates of return. Long-term bonds may be used for medium-term purposes such as home down payments, children’s education, and so on. For short-term goals, most preferred investment vehicles are money market fund, Fixed Deposit or Savings account. The goal for short term is fund safety, not wealth expansion.
- Integrating all of the above
An integrated financial strategy based on your goals is crucial. This helps you to think from a long-term and overall perspective. Thus, you’re are unlikely to pursue an unimportant aim over an essential one. Planning lets you rank their objectives and allocate assets appropriately. Planning helps quantify your goals as per their priority.
Disclaimer: The views expressed in this article are personal in nature and in is no way trying to predict the markets or to time them. The views expressed are for information purposes only and do not construe to be any investment, legal or taxation advice. Please consult your Mutual Fund Distributor before investing. The views expressed are based on the current market scenario and the same is subject to change. There are no guaranteed or assured returns under any of the above-mentioned schemes / fund/ asset class.
Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.