Regarding financial planning, It’s important to differentiate between dreams and goals. Having clear, specific time-oriented financial goals and aligning investments with them is crucial for building wealth and financial security, regardless of your current financial status or age. 

This requires careful planning and periodic adjustments to your investment portfolio as your goals evolve. Adopting a goal-based investing approach that meets specific personal objectives rather than just trying to beat a market index is also essential.

Goal-based investing focuses on meeting specific personal objectives and helps ensure funds are available when and where needed. To practise goal-based investing successfully, you must plan according to your age, risk tolerance, financial situation, and investment horizon.

What Are Goals and Why Are Goals Important? 

A goal is a specific and measurable target to achieve within a certain period. Goals provide direction and purpose and help to prioritise efforts and resources toward achieving the desired outcome.

Financial goals are crucial targets to aim for when managing money, whether it involves saving, spending, earning, or investing. These goals can change an individual’s perspective on life and money, leading to a more significant evaluation of everyday decisions. 

Financial goals are unique to an individual’s financial circumstances and represent the ideal outcome of their financial decisions over time. True financial goals are specific objectives that we strive to achieve within a designated period. Organising goals into categories of short-term, mid-term, and long-term targets will help one stay on track with financial targets.

Setting financial goals can be helpful in many ways. It guides financial planning by breaking down long-term goals into smaller milestones. It lets you track progress and stay motivated. It provides built-in accountability. It improves your money mindset and gives you hope and confidence. 

Steps To Start Goal-Based Investing  

Now that we have understood how fulfilling important financial goals through goal-based investing can improve our chances of financial freedom, let’s see how you can start doing the same. 

Step 1:- Set up S.M.A.R.T. Goals

The key to achieving financial goals is to make them S.M.A.R.T:

S- Specific goals help to provide clarity and define the objective.

M- Measurable goals can be tracked, and progress can be monitored.

A- Achievable goals are those that align with our abilities and potential.

R- Realistic goals consider the current financial circumstances and are achievable with available resources.

T- Time-bound goals have a specific deadline, which helps to avoid procrastination and maintain accountability.

Step 2:- Determine your Risk Tolerance

Your investment decisions should not be solely based on potential returns. Choosing suitable investment avenues based on your risk appetite is essential when creating a financial plan. 

Your risk tolerance depends on age, income level, and investing objectives. Evaluate the degree of risk you can digest and match your investing strategy accordingly. 

When investing for a longer period, you can take on more risk, while less risky assets such as debt and bonds are preferred in the short run. Investments with higher risks usually offer higher returns. 

Step 3:- Diversify

Your financial goals, investment horizon, and risk tolerance should all be considered when selecting assets for your portfolio to diversify. A diversified portfolio combines market-linked securities with fixed-income products. 

Fixed-income securities provide low risk with guaranteed returns. Therefore, they frequently produce lower returns than the rate of inflation. On the other hand, securities like equities and equity mutual funds have higher risks and the potential to make higher returns. 

Long-term risk reduction and portfolio performance can be achieved by diversifying your holdings across various asset classes and individual securities. 

Step 4:- Stay Put and Review 

Investing in specific goals requires discipline and commitment. You must avoid making impulsive decisions based on market fluctuations or other factors and stick to your investment plan.

Goal-based investing is not a one-time process. You must regularly monitor your investment portfolio to ensure it aligns with your financial goals and risk tolerance. 

It is crucial to keep watch of your periodic financial progress, including expenses, savings, investments, and overall wealth. This will make it easier to realign your investments with your goals and make necessary adjustments.

Achieve Your Goals By Investing Online 

Now comes the exciting part: deciding which mix of assets will suit your particular goal. Achieving your financial goals through online investing has become easier than ever. Whether you’re saving for any financial goal, several investment options available online can help you reach your target. Nonetheless, it is important to carefully evaluate the risk-return metrics and select suitable investment options based on your risk appetite and goals.

When investing for a longer-term financial goal, it is recommended to focus asset allocation toward equity and fixed-income securities. This approach can help maximise returns while mitigating risk. For example, to build a sufficient retirement fund, investing in inflation-beating securities like the stock market can aid in making sizable retirement savings. Long-term growth potential assets such as mutual funds and real estate can also be helpful. 

Creating systematic investment plans (SIPs) in targeted mutual funds and investing in equity and fixed-income securities can be a better option for medium-term goals. A medium-term goal could be children’s education or marriage. Investing in inflation-beating products like equities, equity-oriented funds, and liquid funds is crucial to building a sufficient corpus for these expenses. 

For short-term objectives, you can amass assets by investing in equities that have done well over several market cycles. Goals that can be achieved within the next three years, such as buying a car or going on vacation, are Short-term goals.

Final Thoughts…

It’s essential to determine your investment goals early on in life and start small if the process feels overwhelming. Plan carefully at every stage of your life and consider investing in market-linked financial instruments. Setting SMART goals is the key to goal-based investing. 

Remember to use caution and patience while investing and aim for balance in your financial goals.