Have we reached all of the goals that we've set for ourselves in life? Leaving other goals aside, let's talk about our growing list of financial goals that we set and try to achieve through our investments. Despite estimating that a huge amount may be required to fulfill our needs, we hardly take any actions required to make them a reality. Most of us adopt a laid back approach and do not match the savings required for achieving those goals. In fact, the question we should ask is whether have we even identified our goals and found out how much we need to save? Unfortunately, we end up compromising on our precious life goals like retirement, higher education for children and so on just because we cared a little less even though things would have been very different, had we taken this up on priority with all seriousness.
The fact of the matter is that people who have identified their financial goals and planned their investments around these goals are more likely to achieve them. It is very obvious isn’t it? We can see a substantial difference even when we compare the outcomes with 2 persons having the same goals and who are saving an equal amount of money today, the only difference being, one has identified his goals and mapped investments to the goals and one who hasn’t done so. What can be the possible reasons for the success of the first person in our example? Let’s see…
1. Identification/ Setting of objectives: Financial objectives are directly related to a person's or a household's lifestyle preferences and needs. It is important to consider that your financial needs align with your desired lifestyle and income levels. Quantification of the needs helps clear this for us. For example, if you aim to retire early, you need to quantify the amount of savings required and establish a clear timeline. Adapting financial objectives to align with evolving lifestyles and needs may require adjustments and flexibility. This is the reason why identifying financial goals early on and then tracking them helps you as you know what is required and whatyou need to do about it.
2. Clarity/ Purpose of Investment: It is not sufficient to just identify needs. Determining your financial objectives and needs in detail might therefore have a stronger influence. These can include both immediate needs (like saving for a trip or a down payment) and long-term needs (like planning for retirement or paying for children's education). You will now more accurately decide on your investment's time horizon, the risk tolerance levels and the required asset allocation if you have specific objectives in mind. With limitations on saving funds, you would be forced to prioritize investments and to cut back or delay non-crucial goals like say upgrade of cards or exotic holidays. Your investments will have a specific purpose and will be best channelised to achieve them.
3. Focus on the right place: Clarifying your investment objectives is crucial given that they should be your primary emphasis rather than product or scheme selection. All that really matters is not what the market is doing or what other people are saying. What matters for you is whether you are on your way to achieve your goals or not. That’s important and rest everything is noise. Once you make a list of your financial goals and keep focus rightly on those things, you are less likely to make mistakes or act irrationally or let your behavioural biases impact your goals. You would be less likely to redeem your investments and make unnecessary expenses. Your focus would be where it actually should be.
4. Course Correction: One ought to begin by reviewing his investments and determining whether they still line up with his financial goals. Check to see if any adjustments to your goals are necessary due to changes in your personal situation or the state of the market. Regular evaluation and review of your financial plans and your investments is required - either at a fixed frequency or as necessitated by sharp market movements, helps you to stay ahead of the outcomes and identify corrective actions. This naturally means that you would be more likely to invest when markets have corrected or to change asset allocation when the markets are at highs. Doing these small adjustments over time ensures that your financial goals are much more likely to be achieved.
5. Investment Behaviour and Discipline: With the need-based investments and financial planning, your entire approach to investments would change. You would likely see markets in a different light and start evaluating the impact and outcomes not today but in the distant future for any action that you take. This change in approach automatically eliminates any impulsive behaviour and emotional decision making based out of greed, fear or hope. Decisions instead would likely be more based on logic and research. With time, you shall create your own style, rules and principles of investing, helping your transition to a wise and experienced investor.
6. Achieving Future Financial Needs: Clear defined goals and saving for them are prerequisites for achieving them. You have a much lesser chance of reaching your needs and objectives without clarity and a proactive strategy for saving. The last link in the circle of financial stability and wellbeing is indeed achieving future financial objectives. You can feel secure and at ease knowing that you have the means to support yourself and achieve the financial goals that you had set out for yourself, years ago. That sense of pride, peace and satisfaction for your family and yourself, is indeed priceless.
Bottom Line
Overall, the need-based investment approach or the financial planning approach for planning your savings is how all investments should be. A structured and goal-oriented method of managing your finances offers a lot of benefits and advantages and holds the promise of transforming your financial journey in life. However, to do so just by yourself would be difficult. We would encourage you to talk with your financial products’ distributor or advisor to know more and seek expert guidance.
