What is Goal-Based Financial Planning?

Plan Your Finances Systematically


Financial literacy and the ability to ace financial planning are skills everyone needs to have. It’s all about managing your money and finances. The lack of proper financial planning in India is one of the reasons people aren’t able to achieve their financial goals or fall into debt traps. However, when we talk about financial planning, it’s not just about earning and investing. We are referring to goal-based financial planning. What is it? Let’s see!!



What is Goal-Based Financial Planning?


When it comes to financial planning, setting goals is the first step before walking down the path. Your goals will influence every financial decision from the asset class to invest, tenure of investment, etc. Financial goal setting involves a series of actions, from deciding your investing goals to actively taking and executing financial decisions to achieve your goals.


Importance of Goal-Based Planning?


Goal-based financial planning is essential for making correct financial decisions. If you are unclear about your financial goals, then you will make incorrect decisions in the long run. A structured goal-based financial planning will help you


Save More:


With well-defined financial goals, you can plan your income and expenses accordingly. A popular financial goal for saving is 50-30-20, i.e., you will spend 50% of your income on your needs, 30% on wants, and the rest 20% will be your savings.


Disciplined Investing:


You will inculcate the habit of minimizing risks and costs with a prudent asset allocation strategy. 


Tax Planning:


Financial planning is not just limited to investment but also involves tax savings. However, it requires you to invest in those eligible assets for tax deductions. This includes ELSS and tax-saving mutual funds, insurance schemes, fixed deposits, etc.


Peace of Mind:


With proper planning, you are sure to achieve your financial goals in the long run. Goal-based planning helps you stay motivated and prevents procrastination. This brings in a sense of relief and peace to know that your financial future is secure.


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What Are The Steps Involved?


If you are keen to do goal-based financial planning, you just need to follow the below steps:


    • Decide your investment goals: You can have various financial goals like buying a dream house, retirement planning, or exotic vacation. To get an idea of the financial goals you can pursue, log on to Kuvera now. 


    • Make a budget: Your budget will be directly related to your investment goals and the time horizon. You need to put down the value of your goals in today’s terms. The foremost task while budgeting is to decide the amount required to achieve your goal. Then break down the amount into smaller goals. This will facilitate the preparation of the budget for investment.


  • Time Frame for Investment: Once you get to know the value you will need to achieve your goals, you need to decide the time frame for your investments. You can do investments either for the short term, mid-term or long-term returns.


  • Assess your risk appetite: Your risk appetite will play an essential role in deciding the asset class for investing. The thumb rule is that – the higher the risk, the higher the return. If you are planning for a long-term investment, you can invest in risky avenues like equities or mutual funds. However, if you want to invest for the short term, you shall invest in secure avenues like debt or fixed income instruments because the safety of capital invested is essential in the short run.


  • Prepare an investment plan: Start preparing your financial plan once you decide on the above factors. Select your asset class, determine the amount to be invested each month, and the steps necessary to execute your investment plan.


Sample for Basic Goal-Based Investment Plan


Following is an example of a goal-based comprehensive financial plan assuming you are 25 years of age:



Remarks Term for investment Suitable Asset Class
Creating an Emergency Fund The emergency fund should be equal to 6 months of your monthly expenditure


Liquid funds, ultra short term or short term funds, Fixed Deposits
Buying Your Dream House Assuming you will buy your dream house at the age of 30, you will be required to accumulate approximately 20% of the value as a downpayment.

5 years

SIP investment plan in mutual funds, blue-chip equity stocks
Retirement Planning Considering you would be retiring at the age of 60 years.

35 years

SIP mutual fund investment, stock market investment, and insurance plans. Try to diversify your investment as much as possible.

Buying your dream car

Suppose you will be buying your car at the age of 28 years. 3 years

Fixed deposits, recurring funds, debt funds.



Wrap up


As you can understand from the above, goal-based investing can do wonders for your financial health and, if properly followed, can help you achieve all your financial goals. However, procrastination can delay achieving your financial goals. Always analyze the assets before you start investing in them because of goal-based wealth management.



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