FINANCIAL GOALS

All about Financial Goals

Q. How to set financial goals

List your goals between needs and wants. Prioritize the essential and non-essential goals. Then, ascertain the present value of goals. Factor the increase in cost due to inflation, the number of years and then arrive at a future value. Excel sheet and financial calculators may help.

Setting Financial goals

è Why You need goals- Without a set goal in mind, you will not have a decent plan worth carrying out.

è Set the deadline- Decide how soon you want to reach your goal. This affects how much you should invest and the returns you need

è Assign a figure- Every goal needs to have a fixed quantity of money assigned to it like Rs 3L for US trip or Rs 10Cr corpus by the age of 60.

è Where do you stand: You have fixed the idea of your future; now, look at your present- how much money do you have already? How much more you can save?

è Chart your path:Now that you have your start and end points, decide how you will go about with achieving the goal by figuring out your monthly, annual investments as well as assets.

è Is this achievable:It could happen that your goal may require more investing than you are capable of. Think of alternative ways of achieving this dream, or else your goal may not be realitically possible.

To be successful in financial goals, it is necessary to write down goals. Written goals are more successful than unwritten goals. 

Q. What factors should I consider while understanding my risk taking ability?

A. The following factors are to be considered a) Life stage factors like age and number of dependents b) Income and Loans/ Liabilities. C) Time duration of your goals d) Job or career stability e) Awareness of the upsides and downside of the investments

Q How do I time my investment?

A. For an individual investor, the time in market is important and not the timing. Stick to investment discipline. Ups and downs cycle are inevitable in the equity market. So make the investments work for your money. Don’t get emotional SIP would be a good choice. 

Q What after setting the goal? How do I get above investing?

A. Decide on the lump sum or monthly amount of investment that you would like to set aside. Consider investing in MFs for their professional fund management, transparency and to beat inflation. They also offer wide options to reach your various goals. Take the help of financial advisors to complete the investment process.  A periodic review would help you stay the course and reach the destination in time. 

How to Diversify Your Investments –Go for variety, not quantity

When it comes to investing, savvy money managers advise that you spread your money around -- that is, "diversify" your investments. Diversification protects you from losing all your assets in a market swoon. The sharp decline in stock prices in recent years are proof enough that putting all your eggs in one basket is a risky strategy.

But in order to diversify correctly, you need to know what kinds of investments to buy, how much money to put into each one, and how to diversify within a particular investment category.

Investments in each of these different asset categories do different things for you.

• Stocks help your portfolio grow.
• Bonds bring in income.
• Real estate provides both a hedge against inflation and low "correlation" to stocks -- in other words, it may rise when stocks fall.
• International investments provide growth and help maintain buying power in an increasing globalized world.
• Cash gives you and your portfolio security and stability.

Diversify Within Investment Categories

Once you've diversified by putting your assets into different categories, you need to diversify again. It's not enough to buy one stock, for instance, you need to have a lot of different types of stocks in that portion of your portfolio. That protects you from being ravaged when a single industry -- say, financial services or health care -- takes it on the chin.

Balancing Risk and Return

Though diversification protects you from devastating losses, it also costs you in average annual returns. That's because risk and reward go hand-in-hand in the financial markets. So anything that reduces your risk will also reduce your return.

Give yourself permission to take a little risk, unless you're close enough to retirement that the additional security is particularly valuable. 

Is your financial freedom at risk?

Financial freedom means you are able to do what you enjoy without worrying about how it might impact your finances.

Give yourself points on the following basis for the questions listed below and then add up the total score from all the questions given below:

a)    1 point b) 2 points c) 3 points d) 4 points

Q1 How much health insurance do you have?

a)    Don’t have health insurance

b)    Less than Rs 2Lakh

c)    Between 2L to 5L

d)    Over Rs 5L

Q2. How much life insurance cover do you have?

a)    Don’t have life insurance

b)    Less Than 24 months income

c)    Equal to 2-4 years income.

d)     Over 4 year income.

Q3. Have you ever withdrawn from your PF,PPF and other retirement options?

a)    Several Times

b)    A Few times earlier

c)    Just once on an emergency

d)    Never Withdrawn

Q4. How much of your income do you save for retirement?

a)    Haven’t started yet

b)    Less than 10%

c)    10%-15%

d)    Over 15%

Q5. If faced with financial emergency, you will ….

a)    Sell some assets

b)    Take a loan

c)    Liquidate investments

d)    Withdraw from contingency fund

Q6. How much of your income goes into EMIs?

a)    Over 50%

b)    30%-50%

c)    10%-30%

d)    Less than 10%

Q7. Have you rolled over your credit card bill in the past 12 months?

a)    More than 5-6 times

b)    2-3 times

c)    Just once

d)    Never

Q8. What kind of share do you prefer to invest in ?

a)    Penny stocks that can be bought in thousands

b)    Low priced small caps

c)    Mid caps that are quoting at reasonable prices.

d)    Blue chip companies even if they are high priced

Q9. When investing in bonds and FDs, what is most important?

a)    The rates of interest offered.

b)     There is no TDS

c)    Reputation of issuing company

d)    Credit rating of issuing company

Q10. Which of these do you use for online transaction?

a)    Cyber café or public device

b)    Acquaintances computer

c)    Office computer

d)    Own Computer, own network

Please find the evaluation of the scores given below:

Score Card

Over 36 points

You have ensured financial freedom by taking the right steps that will cushion against losses.

     28-35 points

You are doing well and have a good chance to be financially free if a few corrective steps are taken

     20-27 points

You could lose your financial freedom if you don’t act now. Start saving more and avoid reckless spending.

     Below 20 points

You are not financially free and can stay enslaved if you don’t drastically change your spending habit

Based on the scores, you must take appropriate steps and plan the financial goals to be financially free, else it would impact your finances not only in near future but also in long run and during contingencies.