Planning financial goals

When we talk about goals we talk about achieving a target. The target can be the crossing the finish line for an athlete or passing out with flying colours for a student or achieving the top medical college for an aspiring doctor. Every individual has a different approach to achieve these goals. All goals are different and all people have different goals. Today let us talk about a few financial goals.

So what are financial goals? Any goal that needs to be achieved financially viz. goals to be achieved by paying out money, in short or long term are known as a financial goals. Let us take a few examples and discuss these financial goals.

Short term goals: Goals to be achieved in less than a year are short term goals. An emergency like a family member undergoing an operation can be termed as a short term goal, as this goal requires appropriate cash in a very short period. Purchasing a motor vehicle now or marriage fixed at the end of the year or a small trip to native place can also be defined as a short term goal. To meet a short term goals you need to invest in liquid instruments like short term fixed deposits with the bank, or liquid mutual funds, or have ideal cash in your savings account.

Medium term goals: Goals to be achieved after a year but before 5 years can be termed as medium term goals. Goals like purchase of a house or house renovation after 2-3 years can be termed as a medium term goal. For a self employed person, expansion of business after two years can also be considered a medium term goal. In case of purchasing a car, you can make full payment instead of opting for a loan and making payments via easy monthly instalments. This helps in minimising liabilities and over-burdening yourself with a fixed outflow each month. Medium term goals generally require a disciplined investment plan in a mix of equity and debt investments (Read asset allocation for different equity and debt investment options) that can be liquidated when required.

Long term goals: Goals that are recurring in nature can be considered as long term goals. For a newly married couple, planning for child’s education and marriage expenses or for a family in their early thirties, planning for retirement living expenses can be considered as long term goals. You can invest predominantly in equity investments to achieve long term goals as equity as an asset class provides best returns over a long term horizon of 10 to 15 years.

Many of us don’t realise these financial goals and fail to plan for the same. A systematic and a disciplined approach towards investing helps in achieving all financial goals.

Financial Planner, Who?

I remember my friends Amit once telling me that he gets confused with the number of investment options available in the market today. Moreover, he also complained that he was mis-sold a ULIP without an explanation of all the charges. He didn’t know whom to trust and rely upon, who could actually give him unbiased advice. Hence, I referred him to my financial planner who could give him the best possible advice. He was not sure who is a financial planner and what does he do. So I started my verbal journey to explain him who is a financial planner?
He is your financial doctor: He analyses your current financial situation , your past and present finances, salary and other incomes, expenses, your risk profile, personal assets and liabilities, family and dependants health status etc and accordingly makes a plan for you to achieve your financial goals in a systematic manner.
Makes you realize your financial goals: Every individual wants to provide great education for kids and live a happy retired life but less do they understand about other financial goals like a foreign trip, emergency medical expenses, a car purchase etc. A financial planner makes us realise such goals and help us in accumulating funds to achieve such goals on time.
Qualified to handle personal finances: A financial planner has the relevant expertise required to manage finances of an individual. He is regularly updated with market trends, does a lot of research about different investment options in the market, different polices and at last advices the policy that best suits you.
Reviews risk profile: A financial planner ascertains your risk profile and suggests a proper asset allocation. He educates you about how to manage the risk of loss of your life. Plans for an easy flow of future finances required to meet your long term goals.
Unbiased advice: Unlike an insurance agent who sells the products of one company, a financial planner has no such limitations. A financial planner understands a customers requirements/needs, researches about different products in the market and accordingly suggests the product the best suites his requirement.
Ongoing relationship: He does not discontinue his services after submitting your financial plan. He reviews your financial plan on a timely basis and rebalances your portfolio as per prevailing market conditions, change in your family etc.

By now Amit was quite confident that he would surely meet my financial planner and check it out for himself, the difference, it makes on his future financial profile.