Nasim Siddiqi - How to Achieve Your Financial Goals with a Targeted Strategy CATEGORIZING YOUR FINANCIAL GOALS: Categorizing your goals is often mind-numbing! As I mentioned above, there are too many factors simultaneously influencing the achievability of your goals. And when there are too many factors, they will cause your financial plan to derail. Although a professional financial planner’s advice would be helpful, a financial planner can only understand so much as you tell them. The SMART Spectrum of Financial Goals Personal goals, professional goals, life goals and what not! You can find every other goal under the tree of financial goals. In this section, we’ll focus on understanding the nature of your goals. With this approach, you will be able to see all your goals in financial perspective as achievable objectives rather than a distant dream. Just as the word spectrum explains, even financial goals are not copies of one another but vary across a wide horizon of aspects. Like the colours in a spectrum, each goal is similar to another goal but unique at the same time.
Some goals are pure financial goals, like distinct colours of a spectrum; whereas some are not completely financial goals but rely on your work and time, like the gradient between two distinct colours. So What is SMART Spectrum of Financial Goals The word SMART stands for Specific Measurable Achievable Relevant and Timely. The list of goals that satisfies these criteria is the SMART spectrum. And any goal which you can bring in this list is well within your potential to achieve them. Terms of Financial Goals As you already know, typically financial goals are classified based on the time period taken to achieve them. It, in fact, means time period taken to accumulate the funds required to achieve your financial goal. i)
Short Term Financial goals These are the financial goals that take less than 5 years to achieve. Paying off your credit card bills. Generate passive income. Creating your emergency fund. Upgrading your car. Revamping your house, etc. These are some of the short-term financial goals in terms of finances. Great things start small. Setting short term financial goals is crucial in achieving your long term financial goals, as these prepare you for achieving them.
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Medium Term Financial goals The financial goals that require between 5-7 years to achieve come under the medium term category. Some of the examples of medium-term financial goals are, Paying off all your debts. Saving for your daughter’s wedding. Buying your own plot to build your custom dream house. Setting up your own business. Improving your credit score, etc.
Most of the medium term financial goals are standalone financial goals, which do not act as reinforcement to your other financial goals. However, some of these financial goals are also inevitable and must be achieved, one way or other. iii)
Long Term Financial goals Long term financial goals are your life goals. These financial goals take a time period of at least 7 or more years to achieve. Long term financial goals are not too many, but they are very important. Common examples of long term financial goals include, Attain financial independence. Retirement planning. Saving for your child/children’s education. An international trip with the family. Buying own house. Buying a second house. Early retirement planning. Although, since we are listing the financial goals in terms of the time period, some short term financial goals could be a medium-term financial goal for others.
PRIORITIZE YOUR FINANICAL GOALS Technically, prioritizing your financial goals is the third step of categorizing your financial goals. But the significance of prioritizing your financial goals in relation to listing them is very big. And it deserves its own segment for the depth we’re going to discover now. STRATEGIC PREPARATION FOR FINANCIAL GOALS Having a list of the financial goal is never enough. You need a strategy to achieve them. More than a strategy, you need a working strategy to reach your financial goals. Though there are several ‘pre-made’ strategies, their success rate is only below par. For this major reason, you need a customised strategy. You are not an average individual to implement a strategy based on averages. You are a unique individual with unique financial goals. And you need a strategy that is as unique as your financial goals.
Asset Allocation for your Financial Goals Two things, you should consider completing this step of asset allocation. One is your risk tolerance assessment followed by the asset allocation plan. i) Assess Risk Tolerance: Every person has different levels of risk tolerance. Since risk tolerance directly influences decision making, you must take risk tolerance into consideration. Before making the asset allocation you must be aware of your risk appetite and tolerance. Your asset allocation plan will depend only on your sensitivity to risks.
Make a Mixed Asset Allocation Plan: Asset allocation is usually chosen between debt asset and equity asset among several other forms of assets for investment. Debt investment instruments are safer and secure than equity instruments. The returns on these instruments are a solid 8-9%. Despite the fact that the returns at these rates are excellent for short term financial goals; they are not impressive in the long term. Equity instruments, on the other hand, yield higher returns in the long term. Even though equity funds are considered risky than the debt funds, they are the best investment instruments for long term financial goals.
IMPLEMENT THE STRATEGY FOR YOUR FINANCIAL GOALS It is clear. You are going to invest in equity funds as allocated above. SIP is your best instrument or for any salaried employee. 2 things–decide and follow them in this phase of your financial plan to achieve your financial goals. How Much Should You Invest? Financial Planning How to achieve Your financial goals with the targeted strategy How to Achieve Your Financial Goals with a Targeted Strategy? (A Complete Guide With Checklists) By Holistic Do you think you know your financial goals? Multiple SIP and Common SIP, What to Choose? As we have seen before, for long-term financial goals SIP in equity mutual funds is the way to go. It is in the sweet spot of investments since it yields higher returns with options to balance and neutralise the risks. However, a question arises whether to opt for separate SIP for each long-term financial goal or a common pool SIP for all your long-term financial goals. Here’s a simple question to give you the right answer. A separate internet connection for all your devices like Smartphones, computer, laptops, smart TVs and Gaming console—or—common Hi-speed internet connection shared by all the devices over Wi-Fi?