Goal-based investing is the route I am taking in my journey to financial freedom. Since I started investing, I have been trying to figure out the best approach. The questions that generally pop up are how much you should invest, for how long, and when you exit your investments. These seem straightforward questions but a lot of people are unable to answer these. And these become mental blocks in taking the right steps to invest.
Goal-based investing solves a majority of these problems and helps you bring your investments into the realm of reality. I had written about this concept in one of my earlier finance blogs too – The Basics – Do This Before Investing Your Money.
How to define your goals
A good goal should have three components to it –
1. What
2. How Much
3. When
‘The what’ is essentially what is your goal, ‘how much’ stands for what is the amount needed to achieve that goal, and the ‘when’ is the date by which you want to achieve that goal. A few examples of well-defined goals are –
- Buy a computer worth 1.5 lakhs in 3-6 months. - A vacation worth 3 lakhs in 2 years. - Pay off 10 lakhs of my home loan in 2 years. - Buy a new car worth 20 lakhs in 5 years. - Child education worth 50 lakhs in 15 years. - Retirement fund worth at least 10 Crore in 20 years.
Once you have defined your goals it is easy to categorize your goals into –
1. Short-term (between 3-12 months)
2. Medium-term (between 1-3 years)
3. Long-term (3+ years)
Categorizing your goals will also help you understand what type of investments you will need to make to achieve them (more on that later).
For reference, these are some of the financial goals that I have defined for myself (I have removed some of my personal goals from the list) –
| GOAL | GOAL AMOUNT | TARGET DATE | MONTHS LEFT |
| Emergency | ₹1,000,000.00 | Always | |
| Car Loan | ₹200,000.00 | 11/01/2023 | 4 |
| Home Loan | ₹1,000,000.00 | 03/31/2024 | 9 |
| Retirement | ₹50,000,000.00 | 03/31/2035 | 141 |
| Travel | ₹500,000.00 | 03/31/2024 | 9 |
How to do goal-based investing
Once you have defined your goals, the next step is to identify how much money you need to invest today and in which investment instruments to achieve your goals. I would recommend a SIP method in mutual funds for any medium-term or long-term goals. For this exercise, you could assume that you would be investing your money in any index fund with a return of 10-12% per year. With these assumptions, you can use any online SIP calculator to figure out what is the amount of SIP you need to start now.
Let’s take an example. Say your goal is to save 50 lakh rupees for your child’s education in 15 years. So your goal would look like this –
Goal - Child Education Amount - 50,00,000 (50 lakhs) Time - 15 years Expected Returns - 12% (Speculative)
The Android app I am using for these calculations is called FinCa and is free to download.
Once you have entered your goal details you can see the SIP amount you need to start today to be able to achieve your goal. For the above example, the SIP amount comes out to 9909.33. You can round off this amount to 10k per month and you have taken the first step to achieving your goal!
The next step of course is to identify a mutual fund and start the SIP. You can use this guide to identify the mutual fund. And if you are still unsure which fund to go with, index funds are a good starting point.
Track your goals
Now that you have embarked on your goal-based investing journey, it is important to track how you are doing on your goals front. I have been using Google Sheets to track all my investments and goals since it can fetch live data through google finance for various investment instruments. (Please drop a comment below if you would like a blog post about how to create a Google sheet to track your finances).
Currently, this is how I am tracking toward the goals that I shared in the section above –
I track these goals at least once a month but you can define your frequency – every week, every month, every quarter. If your goals are not being met with the investments you have made, you should change to a different investment instrument.
FinCa App
The Android app that I have used to showcase the SIP calculation is called FinCa. Full disclosure – I have been involved in the development of this app. It is still a work in progress with many more financial calculators in the pipeline. You can download this app from the link below –
