A Five Step Process For Meeting Your Financial Goals
Financial Goals are easy to define, but difficult to achieve. Much like dieting, the principles of achieving your financial goals can sound simple, but are surprisingly difficult to implement in real life! Here are five things to keep in mind as you undertake the arduous journey towards the achievement of your financial goals. Some of them may well surprise you.
Don’t Overthink Risk
Many individuals overthink their risk-taking abilities, and end up committing the cardinal sin of channelling long term investments into low risk, low return assets such as life insurance or PPF. This can make a massive difference to the final amount that you end up saving for your long-term goals. When it comes to goal planning, the sole determinant of your investment instrument should be your time horizon and nothing else.
Packaged Solution? No, thank you!
Make sure you avoid fancy sounding “packaged” investment solutions that aim to kill two birds with one stone. For example, child education linked insurance plans may well aim to solve the two very legitimate needs of ‘saving’ and ‘goal protection’; but in reality, they end up solving neither of the two problems fully. Packaged products tend to have opaquely defined benefits and higher than average inbuilt costs. It’s better to stick with regular investments such as Mutual Funds or Term Insurance, solve a singular purpose. For wealth creation, equity mutual funds work best.
Cover Your Bases
The matter of covering your bases through a well thought out personal risk management plan is critical from a goal planning standpoint. Not having adequate medical coverage, critical illness coverage or personal accident coverage can result in unexpected and crushing outflows if you’re unlucky, and this may severely compromise your goals. Additionally, the untimely death of a primary breadwinner may end up compromising important financial goals altogether. Make sure all your bases are covered by having an adequate sum of health insurance and term insurance coverage in place.
Track & Measure
Having a loose understanding of your future goals and saving for them in an ad-hoc manner is one thing, but it’s quite something else to map your regular savings into a program, that tracks and measures your progress towards your goals in real time. Doing the latter can dramatically improve your chances of achieving your goals, by adding to your commitment and alignment – and even adding a ‘fun’ element to the otherwise lengthy and tedious journey towards goal achievement.
Commit Yourself Mentally
Did you know that Hyperbolic Discounting- a very commonly ingrained mental trap - makes as assign exponentially higher significances to near-term goals? This dangerous little phenomenon tricks our minds into attaching exponentially higher significances to our short-term goals. That’s why upgrading your television set today may seem more important than saving for your child’s education goal which is 15 years away. Remember, even small drawings on your goal-based investments, when made early on in your savings cycle, can massively impact on your final amount. You’ll need to beat the hyperbolic discounting syndrome to win!
