Getting Started: Setting your Goals
Every trip needs a destination. Every marketing plan needs an objective. Similarly, every investment plan needs a Goal.
What are you saving for? Is it for?
- A holiday with the family
- A down payment on a house
- Your child's education
- Maybe a second home
- Or for a rainy day
There are many different goals that you want to achieve. However, due to physical limits and time constraints, some kind of choice must be made regarding which goals to pursue. You have to Prioritise.
Prioritising simply means deciding which of your goals is the most important. Financial goals - more often than not - collide with one another. Paying for the family trip to Europe may take away money that can otherwise be used as down payment for a new car. The principle is this:
You should work towards the lesser goals only after the really important ones are well taken care of.
After you have prioritised your goals and know which ones you should be working towards first, assign a rupee value to your goals. For example, a trip to Europe for the whole family would require at least Rs. 4 - 5 lacs. Or, a new house would require a down payment of at least a few lacs depending on the city you stay in.
Be as accurate as possible with these estimations. Some of you might get scared by the large sums of money that some of your goals require. DO NOT WORRY. All it takes is a little planning. If you've planned for it, your chances of earning the money by the time you need it improves dramatically.
TIME is the most important ally when it comes to setting your goals. With time on your side, any investment goal can be reached by virtue of the power of compounding -- which is basically small amounts of money, properly invested over long periods of time, growing into very significant sums.
Let's take a very simple example to show the power of compounding. If you save Rs. 1000 every month in an investment that gives you a 12% return, in 30 years time, your savings would be worth Rs. 34,94,96, that's almost thirty five lac rupees! Try out our forward compounder to calculate this!
The point is that to put time on your side, you need to decide early which of the many possible financial goals are really worth pursuing - and start working toward them.
The goals you set would give you a rough idea of how much money you'll need. Then you can start to think about which mutual funds might be right for you and what kind of returns you can reasonably expect.
You should plan your finances and spending around these goals. Each time you spend money on a purchase or investment that doesn't help you reach one of your main goals, ask yourself whether the spending is really necessary.
Next : Being disciplined