Do you have a big financial goal, something that is equal to at least a decade’s worth of your salary? This could be a retirement goal or perhaps your child’s college education. We might not really think in these terms at the beginning of our careers, but somewhere 5-10 years after working these goals start becoming important.
The issue with big goals – they are big
Many of the most important financial goals in our lives are big. These goals require a substantial chunk of our lifetime earnings as well as a number of years invested in the right asset class.
Many of you know that such goals require equity. Only equity is a proven investment that can grow your savings effectively enough over long timeframes to achieve big goals. Some of us, however, get stumped over how to go about achieving such goals when we are not even sure about our careers and how they will progress. Many of us might not have a linear career progression with steady growth. In such a scenario achieving big goals requires a slightly different approach.
Here are four things that can help you have an easier time achieving big goals:
1. Break it down
A smart way to approach big goals is to divide it into smaller milestone marker goals that you can aim to achieve in much shorter time frames depending on your prevailing financial circumstances. The idea for you is to make definite observable progress that you can track against your larger goal.
Benefit: Big goals are now made up of much more achievable smaller goals
2. Have definite timeframes that have some built-in flexibility
Apart from having smaller goals that make up your bigger goal, the important thing is to attach definite timeframes to them. For example, if your aim is to save up Rs 10 lakhs, then depending on your saving capacity you can decide how long can you give yourself. This will also impact the tool you choose, such as equity or debt. If you have smaller amounts to save, you can choose equity and give yourself more time.
Benefit: You learn how long you need to save and invest for and where to invest.
Smart investors always leave room for luck and uncertainty in their planning. No matter how great your planning and process, the longer the investment horizon, the greater the possibility of unanticipated events affecting your plan.
3. Choose the right tools
The goals decide the investment instrument or rather the larger asset class you need to be invested in. For a goal that collectively needs more money and time, it is better to invest in equity mutual funds rather than debt-based instruments. Conversely, if your goal is just a couple of years away then it is better to go for low volatility instruments such as liquid funds.
Benefit: The right investment can ensure you reach your goal on time and achieve the required amount, in full.
4. Account for uncertainty
Smart investors always leave room for luck and uncertainty in their planning. No matter how great your planning and process, the longer the investment horizon, the greater the possibility of unanticipated events affecting your plan.
What this means is that your big financial goals need a reasonable buffer both in terms of time and money. For example, if a goal needs 15 years to reach according to a financial plan, what you need to plan for is perhaps 17 years to account for bad market years, if you are investing in equity.
Similarly, if your goal amount is Rs 1 Cr, you might want to aim for Rs 1.3 Cr in your planning, with the Rs 30 lakh acting as a buffer in case of unanticipated market events.
Benefit: Surprises don’t throw you off
At last
As long as you follow the right process and make steady, even if stuttering, progress there is hardly any big financial goal that you can’t realistically hope to achieve. Just take it one step at a time.
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