All you need to know about Goal-Based Investment

Goal-based investment is a process where the investments are made to spend on the specific expenditure. The expenditure goal is assigned by the individual to achieve in the future. Every person has different financial goals to achieve. Setting a systematic plan and path to achieve the goal can be done through planning investments rightly. 

The risk that you take will define the goals that you want to achieve. The greatest benefit of goal-based investment is that it gives an investment strategy along with a way to achieve long term financial goals.  

Before getting started, there are few questions that investors should answer to themselves. 

  • What is the financial goal that is decided? 
  • Where to invest? 
  • How to invest? 
  • How much to invest? 

Once these basic yet important questions are answered the investor will get a clear understanding of the investment target. 

Is goal-based investment required?

The primary objective of the investment is to achieve the goal. It is not mandatory that goal-based investment should be long term, they can be short term also but they should be realistic, achievable and measurable. These goals are set to achieve individual goals such as purchasing a house, children higher education, marriage, foreign travel trips, retirement funds or any other personal goals. 

Goal-based investments are required as they provide financial stability. To ensure a stable financial life goal based investment plans are required as it is strategic investment. 

Goal based investment is a financial planning which works more efficiently if you work towards achieving that set goal. The goal should have a deadline to meet and there are other factors associated with achieving the goal. The factors such as investors’ age, monthly income, monthly expenditures, savings and risk associated with it play a dominant role. 

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How to create Goal based Investment?

Creating goal based investments is a systematic step by step process. Below are a few basics that you can follow to get started.

Step 1: Identify your goals

Research and find out about the goals that you want to achieve within a time period. For a single goal, set a time period target and align your goals. If you have multiple goals then divide your goals into short term, medium term and long term goals. Start arranging your investments to achieve the goals. Calculate the investment along with the inflation factors into your goals and set them accordingly.

Step 2: Earning and saving

Once you have decided on a certain goal then plan on how to achieve that goal. Find out the other sources of income apart from your routine job. You can also find ways to save your money by reducing your expenses and increasing your savings. Reduce your unnecessary expenses so that the funds can be moved to investments. Maintain an emergency fund that will come to your rescue when you need money urgently. 

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Step 3: Select your Investment

Select your investment wisely whether it is a short term investment or long term investment. A short term investment can be six months to three years, whereas long term investments are which can be achieved for over five years and longer period. Set the time period for your goal and start making investments promptly. 

Examples of Goal based investments

  1. Plan to buy dream house 
  2. Child education or marriage
  3. Retirement plan

1. Plan to buy dream house or travel vacation plan

If your goal is to buy a dream home then you have to save and make investments. Decide on setting the loan amount. Find out how much money you need to buy your dream home? Plan in such a way that lower is the duration and higher is the investment amount. 

If you want to achieve your dream of travelling and make a memorable holiday then set aside a fixed amount of money for your travel expenses. Travel vacation funds come in handy when you are travelling long distance journeys. 

2. Child education or marriage

To achieve this goal, start saving for your child education from an early age. Since education is a long term process and funds are allocated continuously from your earnings to your child’s education. Regular savings and investments can help you achieve your goal for primary and higher education. As your child grows your investments also grow. Once your child is ready for higher education the fund amount can be utilised for the purpose allocated.

Investments become wealth on the line of time as you keep saving for your child’s future. Once your children become eligible for marriage. The goal based investment amount can be used to meet marriage expenses. 

3. Retirement plan

This investment goal is planned so that you have sufficient money to meet your expenses after you retire from your job. Manage your current income and expenses do make savings so that you have a good investment amount to spend after retirement. 

Advantages of Goal Based Investment

1. Clarity And Focus

Goal Based Investing gives you an idea of your savings and investment plans for a better future. This type of investment gives a secured life, but an individual needs to sacrifice their present day pleasures. Though you face few problems initially you will have clarity that the future of you and your family is going to be secured. Goal Based Investment helps you plan a better living with minimal adjustment in the present life to focus on brighter future.

2.  Good Management Skills

Once you have set a proper goal, you are supposed to invest a certain amount to reach that goal. Investment plans to reach the financial goal teaches an individual to stay stable even at the worst conditions and will remain unaffected by any market risks. As you are aware of the investment horizon choose the right fund,it can be a long term, mid term or a short term investment plan.

3. Investment and achievement 

When you start investing early you will have more time to invest and more age to earn money. The amount that you build will be a large fund. Goal based investment has the advantage of achieving your goal and gives you a sense of accomplishment. 

4. Achieve your goals

You can achieve your goals by not spending much effort and you need not worry about the money that you’re spending because these are already allocated funds for a purpose. Goal based investment can make you achieve your goals on time. 

5. Free from debt 

You can free yourself from the cycle of loans, interests, repayments. Since you have already set your goal based investment you need not worry about taking a loan to fulfil your dream. Without borrowing money you can achieve your financial goals, attain stability and become debt-free. 

Meet the author
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Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It’s a commercial mortgage banking company. He has a “Doctoral Degree in Commerce” and two master’s degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.







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