What is your investing endgame? Here’s how financial goal-based planning can help

When asked why you invest, most investors will respond with ‘to get rich’ or ‘to grow wealth’. Increasing your net worth after all is the primary aim of investing, especially increasing it faster than inflation. The investing journey, however, is not easy.


First, our brain wants things immediately. Have money? Will spend! We are wired for instant gratification. We see this in the explosive growth of ‘buy now pay later’. There is no equivalent ‘SIP now, buy later’. An extreme example is lottery winners. Studies have shown that a significant proportion of lottery winners blow their lottery winnings in a few years with nothing saved for the future.


Second, while markets are your best friend to growing wealth, they are not exactly friendly. They are volatile and will give you Fear Of Missing Out (FOMO) and heartburn in equal measure during your investing journey. Your portfolio value, while trending up in the long run, will sway all over the place and for all sorts of reasons in the short run.


What we need then is an investing hack! Something to help us better navigate volatile markets and our brain’s wiring. Planning for future financial obligations or financial goal planning is such a hack. For the uninitiated, a financial goal has three components – purpose, amount and time. For example, I want to buy a home worth Rs 75 lakh in 10 years is a well-defined financial goal. I would argue that financial goal planning is the second most important investing hack, right after the SIP. Let’s see how.


Planning for a goal-based desire

Planning for a goal creates a cost against immediate gratification – the cost of guilt. It is difficult to sell from your daughter’s higher education pot or your son’s wedding pot to buy the fancy large screen TV that you don’t necessarily need but everyone in your friend circle has and is raving about. The same money, if it wasn’t tagged to a goal, would have been an easy target for spending. This is not something new.

Having a rainy day jar enforces a similar rule: You don’t dip into the jar unless there’s an emergency.


Make yourself the hero in the story

In The Hero with a Thousand Faces, Joseph Campbell introduced the hero’s journey as a universal pattern of trial and tribulations after which the hero emerges triumphant. All stories of heroism across the world have the same pattern and are deeply embedded in not only the stories we like but also in how we see ourselves. Setting a goal makes us see ourselves as the hero on this journey of achieving an outcome.


We expect bad times — market volatility and drawdowns, but we also expect to overcome all of these in the end. Most financial goals, when they are set, seem unachievable because we always aspire to buy a house or a car that is slightly beyond our reach. We want to stretch our limits to see what’s possible and we want to go on this hero’s journey to achieve that stretched goal.


All of this should read like common sense. Organisations believe in the plan, prioritise and execute mantra to reach their corporate goals. Why should the importance of planning in the context of financial obligations be any different?


Research by Lincoln Financial Group shows that setting a goal makes people 3x more likely to save and invest more for it. Our data shows that investors with goals increase their SIP annually by 9 per cent compared to 4 per cent for investors without a goal. Over 30 years and assuming 12 per cent per annum returns, a 9 per cent annual increase in SIP versus a 4 per cent annual increase in SIP would lead to a portfolio that is 70 per cent larger. And that would be a fitting end to a hero’s journey! Wouldn’t you agree?


This article was first published by The Free Press Journal.



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