How should you plan your investments to meet financial goals?

By: | Published: April 17, 2019 9:09 AM

To start with know your financial goals, and make it specific, realistic and action-oriented. Experts suggest financial planning should be done systematically to reach the desired goal.

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Having financial goals are the groundwork for planning your saving, spending and investing activities. Though most people want to follow a healthy financial lifestyle, they don’t know where to start from. To start with know your financial goals, and make it specific, realistic and action-oriented. Experts suggest financial planning should be done systematically to reach the desired goal. One should start with creating a pool for unforeseen circumstances, then opt for the right mix of insurances and then build a corpus to meet one’s short and long-term financial goals.

Find out how to go about your finances, to meet your desired goals:

  • Contingency Fund
    Creation of an emergency fund is the first step one should take before putting your money to any other financial instruments, says financial advisors. Having a Contingency fund helps one during a sudden financial crisis such as sudden job loss, any severe illness or an accident. It is advised to put such fund in a high yielding savings account, providing high-interest rates as these type of account provides instant liquidity and convenience. Generally, one should put ideally around five to six times their monthly recurring expenses in an emergency fund. One should also keep in mind to increase the size of their emergency fund in accordance with a rise in their monthly income.
  • Adequate term and health insurance
    With the rising medical cost, it has become imperative to purchase adequate term as well as health insurance plans. To cope up with high medical bills and to guard your family against uncertainty in case of any unfortunate events it is essential to opt for both of these policies.
    Term insurance provides an assured sum to the insured family, in case of their untimely demise which acts as a replacement income for the family. It is advised one should purchase term insurance of at least 10 to 15 times of their current annual income, and then increase the cover as their income rises. The premiums are also quite low, in comparison to the benefits and cover amount offered by term insurance. The premium paid towards term insurance also qualifies for tax deduction under section 80C.
    Health insurance, on the other hand, tackles rising medical costs. Most people rely solely on their employer’s health policy, which are in most cases not adequate or gets wiped off in a single hospitalization. People with a family can opt for a family floater plan, which would include their parents, spouse, and children in it. One can also choose a top-up medical policy to cover high medical costs in case of accidents or of disability. Additionally, the premium paid towards health insurance can be claimed for tax deduction under section 80D of the Income Tax Act.
  • Investment for Short-term Goals
    Though the timeline for short-term goals is not very clear, usually the goals that are to be achieved within a few months or within 1 to 2 years are short-termed goals. Short-term goals include saving for car’s down payment or family vacation. Financial planners advice to invest in either in FDs providing high returns, or debt mutual funds with low to moderate risk, for achieving such short-term goals.
  • Investment for Medium to Long-term Goals
    Medium to long-term goals have a timeline of about 3 to 5 years or even more. This generally includes investments for a child’s higher education, marriage, buying a house, or building a retirement corpus.
    Investments in equity mutual funds should be considered for these kinds of goals. Traditional investment options such as Fixed Deposits (FDs), and Public Provident Fund (PPF) will not suffice to achieve these goals, and may even fail to accumulate the required corpus or provide inflation-beating returns. Along with the availability of a wide range of schemes and funds, mutual funds provide inflation-beating returns. For new or risk-averse investors who are hesitant to invest entirely in equity, industry experts say one can also opt for balanced funds which have a mix of both debt and equity, and aim at balancing the risk-reward ratio for the investors.

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