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Set a goal before looking for what to invest in

03 Jun 2021 - Contact Sayan Sircar
5 mins read

The purpose of investing is to fulfil 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

Table of Contents

Risks of investing without a goal

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 invest for. Creating wealth is not a goal, while investing for sending your child to Harvard in 15 years is one.
  • 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 in frivolous things just because “money is available”.

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

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How to identify your goals

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 the 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?

Our new Goal-based investing tool will help you to create and manage all of your goals in one place. Click the image below to get access:

Arthgyaan creates a system for reaching your financial goals by sharing simple, actionable advice backed by research and analysis.

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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 the 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 if 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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Asset Allocation (18) Basics (5) Behaviour (10) Budgeting (9) Calculator (10) Children (6) Choosing Investments (24) FAQ (2) FIRE (8) Gold (6) House Purchase (10) Insurance (6) Life Stages (2) Loans (10) NPS (3) NRI (3) News (5) Portfolio Construction (28) Portfolio Review (18) Retirement (20) Review (7) Risk (6) Set Goals (24) Step by step (3) Tax (10)

Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself
use this quick and fast online calculator to find out the SIP amount and asset allocation for your goals.

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Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.

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