Imagine that you’re in college, studying to become a lawyer, and imagine your pleasure the day your degree arrives. It is the same with financial goals, where we plan for something tangible or intangible, and we feel a real sense of achievement the day it gets fulfilled.
Ankit Jain (name changed) was staying in a 1BHK house along with his two sisters, grandparents and parents. Throughout his education, he faced difficulty in studying because there were too many people in the house and he had to study among all the noise. After completing his studies he started working in an investment company and with his first paycheque, he began investing in mutual funds with the sole goal of buying a bigger house.
In between, there were many times that Ankit saw his colleagues buying cars, or going on international vacations. This tempted him but that’s when he realised that if he wants to buy a house in a city like Mumbai all these are distractions that he needs to postpone for a future date.
If the goal is clear and investments are going in that direction, you will definitely make it with time to spare despite all the turbulence. It’s like when we are flying to Delhi via an aeroplane, we might face turbulence onboard but do we tell the captain to land immediately? No, we wait for it to pass and we land only at Delhi unless there’s a major engine issue.
Once we are clear about the goal, it becomes very easy to direct proper funds toward achieving them.
Investments should always be directed towards goals and goals can be anything. For someone buying a MacBook can be a goal, while for another it can be going on a world tour. Once we are clear about the goal, it becomes very easy to direct proper funds toward achieving them.
The goal can be of any duration. For instance, for someone the next need can be in the next 12 months — paying school fees, for another, it can be after 30 years — retirement planning. It can be moving to live closer to the workplace and for someone the goal can be buying a car, hence not all goals are long term in nature.
The choice of products should then be based on the priority and time frame of the goal. For short term goals (less than three years), one should look at fixed deposits, recurring deposits, liquid mutual funds and arbitrage funds. For medium term goals (three to six years), one should look at debt mutual funds, asset allocation funds, hybrid funds and fixed deposits. For goals that are long term (seven years and above), one should look at equity funds, gold, and real estate.
If you have been saving like Ankit for his long term goals, it’s very important to move all assets from market-linked products to safer products like fixed deposits or debt mutual funds once you are just two to three years away from your goal. This is to ensure that short term volatility or uncertainty in these products does not jeopardise your dream and force you to alter the same.
Linking your investments to a goal will help you to track the corpus and also give the pleasure which Ankit experienced in 2019 when he could buy a house in Mumbai after 10 years of focused investing.