What is Goal Based Financial Planning in India? – Steps for a Secure Financial Future

Goal based financial planning

Goal-Based Financial Planning

While investing, the first question that majority of investors ask is, ‘how much returns will I get?’, when the main question that they should ask is, ‘how will this investment help me achieve my financial goals?’.  Goal based financial planning is when you invest your hard earned money as per a solid structured financial plan.  Unfortunately, majority of Indian investors invest: 
  • To save tax or,
  • Because their friend/colleague is investing or,
  • Because their uncle/cousin/aunty is an advisor or an agent 
Goal based financial planning is still in a very nascent stage in India as investors blindly pump money in bank FDs, mutual funds, shares, real estate etc’ without realising that simply saving money will not help them achieve their financial goals.  Goal based financial planning is the foundation of your financial journey. Today we will explain the meaning, components & importance of goal based financial planning in India. 

What is Goal Based Financial Planning? 

Goal based financial planning is a philosophy through which you identify, quantify and create an action plan to achieve your short-term and long-term financial goals. 

What are the Types of Financial Goals? 

Based on the years to goal, your financial goals can be categorised as: 
  • Ultra-short term goals: Goals with a time frame of less than 1 year.
  • Short-term goals: Goal with a 1-3 years time horizon.
  • Medium-term goals: Goals with 3-7 years time horizon.
  • Long-term goals: Goals with 7-10+years time horizon. 

What is the Importance of Goal Based Financial Planning?

Efficient goal based financial planning helps you:  
  • Budget and save more: As you keep track of every small and big expenditure, your saving levels increase considerably as you reduce non discretionary expenses. 
  • Invest in a disciplined manner: Goal based financial planning promotes disciplined investing in the form of monthly SIPs, regular portfolio rebalancing etc. 
  • Reduce Debt: By planning for financial goals in advance, you refrain from taking debt for fulfilling these goals such as vacation, new vehicle, downpayment for home etc
  • Save Taxes: Tax planning is an integral part of goal based financial planning. By planning your 80C deductions early, you can avoid a last minute rush for saving taxes. 
  • Peace of mind: By planning and investing for your future in advance, you can attain peace of mind knowing that your financial goals will be achieved. 

What are the Steps for Goal Based Planning? 

Step 1: Quantify and prioritise your financial goals by deciding the following: 
  • Years to the financial goal
  • Current value of the financial goal
  • Inflation rate
  • Future value of the financial goal
Step 2: Post quantifying the goals, bucket your financial goals as short-term, medium-term and long-term.  Step 3: Link your existing assets and cash flow to your financial goals and determine surplus or deficits.  Step 4: Finalise your asset allocation strategy based on your financial goal timeline and risk appetite.  Step 5: Once you have created a structured goal based financial plan, the next step is to decide on the investment option for your financial goals.  For short term goals, you can invest in debt funds and for long term goals, you can invest in direct equities or mutual funds. 

Sample Investment Bucket

Time to goal Ultra-short term Short term Medium term Long term 
Time frame Less than 12 months 1 - 3 years 3-7 years 7-10+years
Investment Avenue Bank FDs, Savings account Debt mutual funds Balanced mutual funds + equity mutual funds Equity mutual funds + direct stocks + PPF 

As a bonus, here is a basic Goal based investment plan 

Goals Remarks Suitable Asset Class
Emergency funds Emergency Funds Amount = Your monthly expenses (including household expenses, travel, EMIs etc X 6 months) Fixed Deposit, Liquid Funds
Buying house You can accumulate funds for downpayment which is 20%-30% of the property value.  SIP in Mutual Fund + SIP in Blue chip Stocks
Child’s education Children's higher education is getting expensive these days. So, from the year your child is born you should start saving + investing through SIPs in various asset classes. SIP in Mutual Fund + SIP in Blue chip Stocks
Retirement corpus If you wish to retire early, you have to plan your retirement journey well in advance with SIP’s. Saving a small amount of money in a systematic manner today will reap good returns in the future. SIP in Blue chip Stocks
Buying a car Instead of taking a vehicle loan, plan for buying a car without any financial burden. Fixed Deposit + Recurring deposit
Remember, a goal without a timeline is just a dream!  So, the next time you want to invest your hard earned money, first analyse your risk profile, your financial situation and then create a structured financial plan and question yourself, ‘Will this investment help to achieve my financial goal?’ While selecting the best investment option, do not forget shares and mutual funds as these have historically provided the best returns over a long time period.  To invest in the best shares and mutual funds in India, open the best Demat account in India with Samco and get free access to RankMF, the best mutual fund research and investment platform in India. 
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About The Author

The author is a Certified Financial Planner (CFP) with 5 years experience in Investment Advisory and Financial Planning. Her strength lies in simplifying complex financial concepts with real life stories and analogies. Her goal is to make common retail investors financially smart and independent.

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