Tags: Wealth Management, Investment Lesson, Mutual Funds, Mutual Fund Basics, Stock market, Budget, Finance, Investing, Personal Finance, Investment, ETFs, SIP, Multi cap
In the previous post are some examples of common situations we see regularly in our own life or the lives of people around us. Though there is no explicit mention of money in these examples, we intuitively know that money would be involved in each of these situations, whether Shalini has to be educated well, or Surinder Singh has to buy a house, or Mrs. D’Souza or Rabindra have to fund their lives in retirement. In the investment world, the requirements of these four are known as financial objectives. When we assign amounts and timelines to these objectives, we convert these into financial goals.
There are numerous examples of such financial goals. Among the most common are funding a child’s education, the cost of the marriage of one’s son or daughter, funding the lifestyle in retirement, buying a vehicle, buying or renovating one’s house, taking a big vacation. At the same time, there could be some not-so-common ones like starting one’s own business or taking a sabbatical from work and fund one’s higher education.
Goal setting is a very important exercise while planning for investments. As seen above, all the financial goals are about the need for money that cannot be fulfilled through the inflow at that time. While the expenses for the goal may be high or low, the income (from salary, professional fees, etc.) may be less than the amount required to fund the goal. This is where money needs to be withdrawn from the investments – in other words, this is why one needs to invest the money.
The first step in goal setting is to identify these events in life. Some of these are desirable and can be planned, whereas some others, which may be undesirable, may spring up as surprises. Those events with a potential negative outcome would be undesirable. Some of the examples of the same are the death of a family member, hospitalization, accident, theft, fire, etc. One cannot plan to fund the expenses associated with such events through investments, though we can create an emergency fund using some savings and investment products. Apart from the emergency fund, one may buy insurance policies to cover the risks of such events.
After identifying the events, one needs to assign priorities–which of these are more important than the others. Retirement or children’s education fall into the responsibility’s category, whereas a grand vacation may be a good-to-have goal. Having said that, it is only the individual and the family that can decide which is which. A financial advisor or a mutual fund distributor may only guide and help one take an appropriate decision. At the same time, the role of such an intermediary would be very important.
After that, one needs to assign a timeline as well as the amount of funding required at the time of such events. Take for example, if someone is planning to buy a house, one needs to decide the type of house one wants, as well as the location. These inputs would help arrive at approximate cost. After that one needs to decide by when one would like to buy this. Both the timeline and amount are critical for one to be able to plan to achieve the goal.
Such an exercise allows one to classify the goals in terms of the timeline – are the goals in the near term, or far in the future?
Disclaimer:
The information set out above is included for general information purposes only and is not exhaustive and does not constitute legal or tax advice. All complaints regarding Mutual Fund can be directed towards visit www.scores.gov.in (SEBI SCORES portal). Readers are requested to make informed investment decisions and consult Chaitanya Financial Consultants – 9000628943 / mfd.mmr@gmail.com to determine the financial implications with respect to investing in Mutual Funds.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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