and money management begin with setting goals. Long term financial goals, and planning are some of the reasons put down to save and .
However, it’s not always necessary to save orwith a specific goal in mind. If you don’t have a defined goal, you can save just for the sake of saving and those savings just for the sake of earning returns. It is critical to understand the advantage that a high savings rate can give you and the risk of the subsequent plan you undertake.
When you don’t have a goal?
If you are just starting out with your earning journey or if you have been on it for a while but without the responsibility of any dependents, articulating a precise goal towards which you are saving can become a needless drag.
It’s simple to define children’s education as a goal if you have children; its simple to define international travel as a goal if you aren’t already in a job that requires constant travel around the world.
The common assumption is that everyone must have a future financial goal, however, it’s just as reasonable to assume you may not have defined that goal for yourself as yet. Don’t let an undefined goal take away the benefit of starting your savings journey early in life. Uncertainty is a part of life and saving a portion of what you earn will have benefits which accrue in future.
Without a defined goal, the time frame forcan be long and hence, your ability to in growth is also higher. Keep in mind though, risk has to be measured; do not take on undue risk, rather focus on building long term wealth through high quality and efficient return options without worrying about short term capital safety.
This applies very well in the early years of your earning life.
When you have surplus?
You could also be on the other end of the spectrum. Let’s assume, you started saving early and made good, earned better than expected salary or had better than expected profits through your business.
The result being that yours and your family’s future financial needs are well-taken care of, much before time. As your earning journey continues and your work efforts continue to generate a monetary surplus, you are in a better position tothese towards the goal of maximizing growth.
Thecould be in the form of small stakes in other businesses or large contribution to managed funds in the equity markets. Whatever your choice of , it’s not unreasonable to assume that the goal is purely “returns”. With a secure financial future, you may even be willing to take on a bit of extra risk in such knowing well that your capital may suffer.
Both these approaches to incrementalare just as reasonable as well-structured through goal planning. In both cases, there are no defined goals that need to be fulfilled. It is only in such limited situations that you should seek to build return maximizing portfolios; horizon can get stretched in time to absorb volatility risk or you have enough buffer through existing wealth to absorb high risk which accompanies high return.