Goal-based investing doesn’t only make it easier for investors to invest but also to track the progress of each goal. All their goals can be converted to financial needs and investing becomes simpler. But there are few common goal setting mistakes that investors make. The following are 5 common mistakes in goal setting.
1. Unrealistic goals
Setting unrealistic goals or goals that cannot be monetized is one common mistake. For example, a goal can be to retire early. But one needs to define the retirement age and what corpus they need and what will they be doing post-retirement. So an ideal goal is to retire at the age of 45 and spend the rest of the time traveling. By this goal, it can be known how much money is needed then and one can calculate how much to start investing from now.
One has to set goals that are achievable and not too ambitious. Having a goal of earning Rs 2 crore is 3 years can be achievable. But one should have an income level which supports the goal. If the income level is too low and the person has to support an entire family with the income then achieving this goal can be difficult. Therefore having realistic goals is one way to achieve goals.
2. Not working towards the goals
Having goals is the right way to start investing. But just having set the goals is not sufficient. One has to invest towards achieving the goals. Investing is equally important as setting a goal. After setting a goal make a plan on how to achieve the goal. This way one can invest towards achieving the goal.
3. Not prioritizing goals and not aligning them with investments
Not prioritizing goals is another goal setting mistake investors make. After writing down the goals make sure to prioritize them in terms of how important are they to you. Investing towards vacation before investing for having an emergency fund and insurance is a mistake. Prioritize your goals starting from meeting emergency needs to insurance and then move towards home or car and then retirement.
Another common goal setting mistake is not aligning the goals with investments. Investing in equity for a near term goal and investing in liquid funds for a long term goal is a big no-no. Taking help of a financial advisor is better if one can’t figure out when to invest in what. Always align the goals with investments.
4. Not taking inflation into account while setting goals
It will be a mistake to ignore the elephant in the room. Inflation is integral to an economy and setting goals keeping inflation in mind makes it more realistic. The value of Rs 10 in the 1950s is worth more than the value of Rs 10 today. Setting goals by adding inflation to it can help the investor have enough amount when the goal is to be achieved. Expenses keep increasing and taking inflation into account can help the investor be prepared with the rising costs.
5. Not tracking goals
Another common goal setting mistake is to not track the progress of the goals. Investor’s job doesn’t end at setting goals. They have to track the progress of the goals. It can be easy as the goals are monetized. If they aren’t close to achieving the goal then the portfolio can be rebalanced to achieve it. Tracking the progress periodically is necessary. Also, if one feels that the goal needs to be achieved early or they might need more money to achieve the goal then he/she can always add more money to the current investments.
These are the most commonly committed mistakes when it comes to goal setting. To achieve goals faster mutual funds SIP step-up can be helpful.
Mutual funds and SIP step-up can helpful
One can always invest in mutual funds to achieve their goals. Mutual funds come in all types for short and long duration in high, medium and low-risk variants. Investing in mutual funds through SIP for a long-term can be very beneficial for investors. SIP and long-term is a perfect combination for wealth creation. Also, mutual funds come with a step up option.
One can always step up their investments on a yearly basis. A 5-10% increase in investment yearly can help them achieve the goal faster or achieve the goal with a higher amount. Mutual funds offer a convenient option to step up the SIP on a yearly basis. An increase of 10% yearly is considered healthy. SIP step up is a great tool to turbocharge investments.
Remember it is always better to set realistic goals that can be monetized. Just setting goals is not enough, working towards them is equally important. Prioritizing goals and aligning them to investments is as important as setting the goals. Taking inflation in to account while setting goals can help one set realistic goals. Track the progress of the goals periodically and if needed rebalance the portfolio and add in more money to achieve the goal faster. SIP step up is a great tool to turbocharge investments.