2018: Ready, Set, Goal!
The impact of Goal Based Financial Planning is understated, to say the least. Prima facie, it seems like a mundane task – set your future financial goals and save for them in a structured, objective manner. Indeed, there’s no rocket science about Goal Based Financial Planning – like dieting to lose weight, it’s a simple activity with a few basic tenets and no magic formula per se. And like losing weight, it’s not easy to accomplish, as most Indian adults will attest to; especially challenging is the act of staying the course over the long run!
Over the past few years, I’ve witnessed firsthand, some incredible success stories related to Goal Based Financial Planning. These have led me to believe that the benefits of this seemingly unexceptional activity as indeed – quite exceptional! If you haven’t already set your Financial Goals and started planning for them, the new year would be a good time to start. Here are a few non-obvious benefits of kicking things off.
It focuses your priorities
Goal Based Financial Planning focuses your priorities and ensures that your cashflows are directed to the areas of your life that really matter. You may be all set to redeem a large chunk of your investments for the down payment of a new car, only to be informed by your Financial Planner that this simple act would have a 33% impact on your Child’s education planning goal. This would no doubt make you pause and reconsider your decision.
It takes away your attention from market movements
When you’re a goal based saver, you’re less bothered about the day to day vagaries of the securities markets, since you’ve got your eye on the big picture. Resultantly, your investments will be more likely to stay the course and recover after bearish phases, whereas regular investors will have moved churned and burned their funds in their fruitless attempts to time exists and entries. If your regular savings flow into volatile assets in a structured manner (for instance, through SIP’s), you’ll end up benefiting from the ups and downs in the long run.
It increases your ‘stick-to-itiveness’
A key determinant of long-term investing success is the ability to stay invested for long periods of time, without speculating about the near-term direction of where markets are headed. Imagine this – if your goal is to save Rs. 50 lakhs for your kid’s higher studies in 15 years, and your current 5 lakh corpus dips 10% to 4.5 lakhs, will it really trouble you that much? Not really – because your goal post is likely still 12 years out, and you know that you have enough time to catch up. By vastly increasing your ‘stick-to-itiveness’, Goal Based Financial Planning makes you an exponentially superior investor.
It makes you a guilt-free spender
Goal Based savers are relatively guilt-free spenders. Wouldn’t it be wonderful to spend some of your hard-won funds on yourself, without the niggling guilty voice in your head saying, ‘you should save this for your child’s future, or for your retirement!’? When you know that you’ve got a robust, realistic plan in place that’s steadily pushing you towards the attainment of your life goals, you can actually spend some of your money happily.
It makes you less interested in ‘keeping up with the Joneses’
Anecdotal evidence suggests that Goal Based Savers are relatively less likely to display an interest in the social media fueled race to outdo their friend’s latest car, vacation, or gizmo. Instead, they tend to be more responsible spenders who don’t end up racking up thousands of unpaid dues in EMI’s. In the long run, they end up wealthier and happier than their counterparts. And yes – they win the race in the long run, too!
