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Set a goal before looking for what to invest in

Posted on 03 Jun 2021
Author: Sayan Sircar

Tags: Set Goals ; Calculator

5 mins read
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The purpose of investing is to fulfill a life goal: set that first

What are financial goals

“If You Don’t Know Where You Are Going, You’ll End Up Someplace Else” - Yogi Berra

Risks of investing without a goal

Alice in Wonderland teaches us why goal-setting is important

Goal setting helps you understand the priorities of your life, set the future of you and your family, understand the various money-related challenges that come and be best prepared for the future financially. Goals give direction and momentum to your financial life:

direction: if you know why you need it then you know what to invest for. Creating wealth is not a goal. But investing for the purpose of sending your child to Harvard in 15 years is a goal
momentum: this allows you to build investing discipline and track progress along the compounding journey. Without a goal, it is likely that the money will be spent on frivolous things just because “money is available”.

You will hurt your chances of creating wealth via compounding if goals are not set.

How to identify your goals

Just like when you go on a trip there is a destination, it is the same for any investments.

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Investing without a goal is like getting into a taxi and when asked “Where to go?”, you answer “I don’t know, take me somewhere”. Investing without a goal increases the chances of investing in the wrong thing (either too high risk or too low returns) and that will cause problems once actual goals are identified. Investors should make every effort to set goals first before starting investments.

Goals can be set in many ways:

Think about the future

Here is something you can do:

Sit and think about your plan for the future and write them down
Where do you see yourself in life: 5, 10, 15, 20 years from now
What do you want to do in your career: salaried job, own business, freelancing…
How long do you want to work? Are you excited by the Financial Independence, Retirement Early (FIRE) movement?
What are your plans for retirement?

Discuss with family

You are investing for your and your family’s future and building a financially stress-free life:

Discuss with family members since they are important stakeholders for your journey
What kind of lifestyle do you want?
What kind of cars and homes do you want to buy? In which neighbourhood?
What kind of schools and colleges do you want your children to attend? How will you plan their marriage?
What kind of retirement do you want to have?
Target high: for example for a 3 year old’s future college education target medical stream first (higher amount) and later review 10 years later when the child’s choice is more clear (say engineering which is cheaper than medicine)

Revise goals based on life events

It is said that man makes plans and God laughs. While life has ups and downs there are always events that happen and plans require change:

Higher education/skill enhancements may require a lot of money and planning
Same for buying a house
Marriage and children are major life events that require re-planning
Illnesses and sudden changes like job loss bring risk
Outlook changes - some want to change careers: job to business or reverse
Location shift: from Tier 1 to Tier 2/3 city or vice versa or relocation to another country

Set SMART goals

Once you have decided what the goals will be, use the S.M.A.R.T framework:

Specific: Why do you need the money?
Measurable: How much money do you need?
Achievable: Can you do it? Do you need help?
Realistic: Can you reach this target based on where you are?
Time-bound: When do you need the money? Is the timing flexible?

Refer to this post for more details: Why Investment goals must be SMART?

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What if there are no immediate goals

Is having just “wealth creation” a valid goal?

This is fairly possible for many at the beginning of their career or even in the middle stages. Sometimes the goal-setting process itself takes time. Instead of having stress thinking about goals do this:

make sure your prerequisites are in place which will take a few months: see this detailed post
if you are anxious to start, simply start a 50:50 investment in simple to choose equity and debt assets (Disclaimer: Always do proper due diligence before investing and invest only if you believe that it is suitable for your needs).

But as this post explains, it is important to put a target figure around your goals: Why you should chase your target goal corpus instead of returns. Once you know your goals, please move on to the next step of goal-based investing: Part 3: I am now ready to do goal-based investing, how do I get started?

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Worked out case studies for goal-based investing

Case study: how can this middle-aged investor with two children plan for retirement and children's goals?

This article shows how a single-income middle-aged couple with two small children reach their retirement and children’s goals.
Case study: can this double income single kid family reach FIRE at 50?

This article shows how a double-income couple with a 2-year old reach their FIRE dream at the age of 50.
Case study: how a family in their mid-30s with a newborn kid can FIRE and invest in real estate?

This article shows how a double-income couple with a newborn child can invest for their future goals of FIRE and real-estate investment.
Case study: how this double income recently married family can perform DIY goal-based investment planning

This article shows how a young just-married couple can invest for future goals using the Arthgyaan goal-based investing tool.
Case Study: How should couples in their 40s with a new baby plan their financial future?

Did you welcome a bundle of joy in your 40s? This article will discuss ways of planning the child’s (and your’s financial future)
Case study: how this double income single kid family can perform DIY goal-based investment planning

This article shows how a very typical salaried couple with one child can invest for future goals using the Arthgyaan goal-based investing tool.

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Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself.

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