Crypto Investing
27 Nov 2020

What Is Goal Based Investing & Why It Is Important For You?

Farheen Shaikh

“Dreams transform into thoughts and thoughts transform into action” Dr. APJ Abdul Kalam.

It is natural for humans to have dreams of all sorts.

Some are small, some are big, and some can even be unusual, like Sara’s dream. 

Sara always dreamt of owning an island.

But she never gave it life, thinking that it was far-fetched and financially impossible. But why should someone give up on their dreams just because it is economically farfetched? 

Like her, we have dreams too.

Many of us have let our dreams perish because we think they are beyond our power to achieve them. But what if there is a way to make your dreams a reality?

Yes, you can make your dreams come true, but they have to transform into goals before that. 

Your dreams can only become goals if a monetary value and time horizon are attached to them. 

For discussion sake, let say:

Sara found an advertisement online saying, “Buy your own island for ₹50lakhs“. With her savings and income, she has the capacity to purchase it in 5 years.

Now Sara’s dream has a monetary value and time frame attached to it.

But how can she achieve this goal?

Like we always say – investment is the solution, and in her case, Goal-based investment is the solution.

What is Goal-Based Investing?

As the name suggests, goal-based investing is planning and making investments to achieve specific life goals. With a robust financial plan in place, your goals will be realized for sure.

This concept may sound novel, but goal-based investing has been around for a while. 

An example of goal-based investing can even be derived from Kanchivaram- a national award-winning movie. 

In the movie, a daughter is born to a silk saree weaver. Intending to gift a silk saree to his daughter on her wedding day, he starts collecting one thread of silk every time he weaves a saree.

He continues to do so till he has enough silk to weave the saree. His goal of weaving a silk saree for his daughter comes with the silk threads’ cost and a time frame of about 20 years. 

This concept of goal-based investing is different from investing to earn higher profits in your portfolio.

Such investments have a purpose, a financial value, and a time frame attached to them and are not only constrained to higher returns.

How Does Goal-Based Investing Works?

The most crucial step to goal-based investing is defining your goals and financial situation. 

A good plan should also be SMART.

  • Specific – Your goals need to be precise and defined.
  • Measurable – Make sure to be able to measure your progress towards the goal.
  • Achievable- set goals that can be achieved in the given time.
  • Relevant- The goal should have some relevance to your life.
  • Time-Bound- Put a clock on the goal to track your progress. 

You can chalk out a robust financial plan based on these factors. But, before you start investing, there are a few things you need to ask yourself:

  • What amount is required to achieve the goal?
  • How much time does it take to build the amount?
  • Whether your investment will be lumpsum or periodical?
  • Which is the best investment that suits your goals?

If you can answer the above questions, without a doubt, you can consider yourself ready to start practising goal-based investing. 

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Importance of Goal-Based Investing

The following are a few reasons why you should consider the goal-based investing approach:

  • Your Investments Have Meaning.

When you have a goal, you have set a purpose towards which you can work.

All your surplus funds can be diverted towards something meaningful. When your goals are met with your own funds, there is a feeling of accomplishment. You can refer to some of the investment plans if you have made up your mind for goal-based investing.

  • You Know What Investment Product to Choose

Knowing what you need in advance gives you the advantage of determining which path to take. There is no one single investment product that can fulfil all your goals.

So when you have a set plan, you can analyze and make informed decisions on which investment vehicle available in the market will suit you the most. It also enables you to determine whether to invest in a short term or long term.

  • Puts Your Finances on Track

This strategy will nudge you towards financial discipline.

When you know that there is something to work for, you will follow strict investment patterns. You can also systematically plan your investments by adding a fixed amount of money to your funds periodically and regularly.

Here are some more financial strategies that you can learn from.

  • You Can Achieve Financial Freedom

With your investments on track, all your financial goals can be met smoothly without much-unexpected stress. Achieving your objectives ticks all the boxes in your checklist, pushing you faster towards financial freedom. 

Bottom Line

Wrapping up, practising goal-based investing gives you hold of your finances. Whether big or small, ordinary or bizarre, this approach enables you to make your dreams come true.

PS: When we say dreams, we mean financial ones. For romantic dreams, please seek expert advice elsewhere :P.

But I hope for your dreams to come true, both financial & romantic ones :D. 

[su_note] KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing. [/su_note]

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.

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Farheen Shaikh

Content Writer

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