Investing money in different avenues can be a good way to earn higher returns in the future. By now, we know that investing is a good habit. But investing towards specific goals is a better habit. This way, you can concentrate on achieving real financial goals in your life within a certain time period.
But what if you have too many goals? How do you achieve all of them?
Let’s take Abhinav’s example. Abhinav has been working in an IT company for the past one year. He has just started investing his money. Right now, he has multiple financial goals for the near future. Here is his list of goals:
Abhinav earns around Rs 45,000 per month. With his income, it is not possible to meet all his goals at the same time.
Instead, it is always better to prioritize goals. In other words, some goals are more important than the others (at least for the short-term). By identifying the most crucial goals, it becomes easier to achieve all the goals at the right time.
1) Create a list
The first step is to create a list of all the financial goals you have. This exercise helps you understand what you would like to achieve in the next six months, two years or even ten years. Remember to be as specific as possible when writing down the goals. This will help you arrive at a clear financial estimate for the goal.
2) Rank them in order of importance and urgency
Once you have identified your goals, it is a good idea to rank them in order of importance. For instance, Abhinav may want to buy a sports car. But is the goal really that important currently?
Paying off the college debt may perhaps be the most important financial goal at the moment. It is always better to clear off existing debts. There is no point in chasing lower investment returns (6-8%) when debt (20%) is much higher. It might be better to postpone a less important goal for a later date when the financial conditions get better.
3) Invest to achieve these goals
After identifying the short-, medium- and long-term goals, Abhinav can start investing to achieve them. For instance, creating a retirement fund is an important long-term goal that should not be ignored. Abhinav can start investing small amounts regularly in an equity fund through a Systematic Investment Plan (SIP) for this goal. Similarly, he can divide up his funds to invest in different avenues based on his requirements.
4) Reassess the list after a few years
Once he achieves a goal, he can tick it off the list. Every small progress is important. However, it is necessary to review the list once in a while. As people grow older, their goals and ambitions change. As a result, Abhinav needs to adjust his goals whenever necessary and invest accordingly.
Goals are an important aspect of human life. But not all goals are equal. As a result, it is necessary to prioritize them and work actively towards achieving them at the right time in life. This way, it is possible to lead a happy and fulfilled life (at least where the finances are concerned).
Most people have the habit of saving money. This is certainly a good thing. But guess what? In the current day, saving money is not enough. You need to do much more in order to beat inflation and achieve your goals.
Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Where to Invest: Short term Vs Long term investments: How do they differ
There are many investments options to choose from, however investment options can be classified under two broad heads: short-term investments and long-term investments. To decide between the two types of long term investments, you need to begin by knowing the difference between these two and the purpose they are designed to fulfil. Let’s dig deeper to find out the essential differences between short- and long-term investment options. Time frame The first and foremost difference between short term and long term investments is with regards to the timeframe that they are held for. Short-term investments are typically held for less than 12 months. Long-term investments, as the name implies, can be held for several years, typically, 10 years or more. Risk and return expectationsAll financial instruments carry some element of risk and the ability to provide returns. The difference between short-term and long-term investments can also be determined in terms of risk and return expectations. For instance, equity investments are short term investments with high returns that can be held for a short but can be subject to a high rate of fluctuation. However, if you have different expectations of your investments and are essentially investing for principal protection, a short-term investment in a debt-oriented instrument will suit your purpose just fine. Expectations can be radically different when you are investing for the long term. In such a case, you do expect higher returns along with capital appreciation and minimum risks. Investing in equity in the long-term can be considered a relatively risk averse strategy. This is because over the long-term, the impact of volatility is lessened considerably. Additionally, equity as an asset class provides the best inflation-adjusted returns over the long term. Those with a medium- to high-risk profile can thus consider equity investments to build a decent corpus for retirement. In conclusion, it may be fair to say that as an investor it is likely that you will need to invest in a mix of both long- and short-term investments to meet different financial goals. A good idea about the essential difference between the two will help you make a prudent choice. When it comes to creating an investment strategy, it is crucial to find the exact balance based on your individual circumstances. Prior to beginning an investment plan of action, whether short or long-term investing, you may want to list down a set of clear goals for investing. Even though short-term investments may appear to be a better option, because it offers better liquidity, you may want to lay aside a component of your money to invest for the long term. This is because long-term investments have better protection ability if you were to fall back on some of your money due to an unexpected fall or a bad investment. One crucial tool towards building wealth is to invest without worrying about the future or avoiding it.To help you understand your financial foals clearly and risk tolerance, you may want to consider using a financial advisor. An advisor can guide you in building an investment portfolio that focuses on your goals. You can receive the best course of action for your investments based on your financial goals as the financial advisor can help you determine the amount of growth and money you would require in a specific period. DisclaimerInvestment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
The importance of building an emergency fund
There is a popular fable about the ant and the grasshopper. While the ant toiled hard during the summer, the grasshopper would sing and dance and mock the ant by asking: “Why do you work so hard?” But when winter came along, the tables changed. The grasshopper became miserable, it no longer sang and danced and mocked. How could it? It had no food, no shelter during the damp, cold nights. The ant, on the other hand, remained well-stocked. This story conveys that one should work hard when times are good because no-one knows what the future holds. This is precisely the reason you should create an emergency fund. The kitty you build can be a life saviour in tough times. It can help you tide over family or financial emergencies, loss of job and other such personal hardships. This is why saving for the future should be the first step of financial planning. Building an emergency fund is not tough as you’ll realise when you give the article a read.How to create an emergency fund?Like the ant, you have to be zealous enough to set aside a part of your income every month, without fail. The amount you save will comprise your emergency fund. As we mentioned in the previous chapter, it is advisable to save first and then spend on your monthly expenses. This way, the creation of your emergency fund will not be risked by your bout of overspending. At least 10% of your gross monthly income should be saved in order to build an emergency fund.Where do you park your money?Stashing money in your house is not a good idea. You may be compelled to use that money for every inconvenience you face. Now the question arises: where do you keep your money for financial emergencies? The options • Life insurance You can choose to buy a life insurance cover. A life insurance can safeguard your family in case you are not around. The value of your term insurance plan should ideally be eight to 10 times your gross annual income. This will ensure your family doesn’t face financial upheavals in your absence. • Health insurance A medical emergency can drain out your wallet. To worsen matters, healthcare costs are rising sharply in the country. A nationwide survey found that the costs are growing at over 10%, both in rural and urban medical facilities. Hence, a medical cover is of vital importance. You may have to pay a small premium every year. But, the larger picture suggests that’s a small price to pay. Also ensure you opt for a critical illness cover. This can protect your finances in case you are diagnosed with cancer, have a heart attack or are suffering a life-threatening illness. In short, do not look at the money you are spending on a medical cover. You should, instead, look to get the optimal coverage in your medical cover.• Liquid mutual fundLife often throws different curveballs at you. For example, you may lose your job. In such cases, you need money at hand. This is where a liquid mutual fund can help you. You will get two benefits. One, the fund can give you decent returns at minimal risk while you are invested. Two, you can withdraw your investment as and when required. • Bank balance Your savings account can be of help too. Try and keep aside at least two months’ worth of your income in your bank account. The biggest advantage of having cash in your bank account is that you can withdraw any time, thanks to ATMs and debit cards. To sum up Planning an emergency fund is essential if you want to sail through life without any financial difficulties. So, create a contingency fund and invest it in suitable avenues.
Are you Investment ready?
*All fields are mandatory