Factoring in time is critical to the safety of your money in the short term and wealth creation in the long term.
You must make systematic, time-bound, and goal-oriented investments for best results. Suppose you want to buy a car worth Rs. 10 lakh after two years and you need Rs. 2 lakh for its down payment. Therefore you invest Rs. 7,000 per month in PPF. Will this be fruitful? Absolutely not.
This is because PPF is a long-term investment instrument and illiquid in nature so it won’t help in achieving the goal. So your investment should match your returns expectations, your available tenure, and your risk appetite. Most investment goals short, medium, and long-term in nature. Each may require its own unique approach. Let’s understand these in greater detail.
How To Identify Money Goals
The best way to identify your goals is by segregating them as short, medium and long-term.
Let’s segregate your investments by supposing that you have 25 years left to retirement.
- Short-term goals: Those that need to be achieved in the next five years.
- Medium-term goal: Goals that need to be achieved in the next 5 to 15 years
- Long-term goals: Those that are not due for 15 years.
After this segregation, you should prioritize goals for each term. Another point to keep in mind while identifying goals is to understand where you stand on your income and savings. For example, if your current income is Rs. 30,000 and you have a home-buying target that requires you to pay Rs. 50,000 as EMIs, it won’t be a realistic target. So the objective must be realistic and achievable.
Let’s check out five common investment goals, and ways to get such targets by smart investment.
Retirement is the most important goal of life around which other goals are outlined. You must decide your retirement age first. Suppose you are 35 today and intend to work till 60. You have 25 years left to create your retirement corpus. Retirement is the longest of the long-term goal. Therefore, your investment instrument should be suited to long-term objectives.
Long-term goals like retirement require regular reviewing and updating your decisions to ensure you remain on track without being disrupted. They are best achieved with a diversified investment portfolio. You can divide the investment for retirement objective into three parts. First, that focuses on maximizing returns by taking moderate to high risks. This can be done with equity mutual fund SIPs. In the second, you can take moderate risk. For this, a balanced mutual fund is a good option. In the third, you need to invest with minimal risk. For this, liquid mutual funds, fixed deposits, and low-risk annuities help. The selection of investment instrument should be based on one’s risk appetite and return expectations.
Child’s Higher Studies and Marriage
Your child’s higher education and marriage give you the time of about 15-20. Therefore it can be considered a long-term objective. This, too, can be achieved via equity-oriented mutual fund SIP, and tax-efficient and low-risk avenues like Public Provident Fund or Sukanya Samriddhi Scheme (for the girl child). You must consider the prevailing inflation rate from time to time and make the requisite adjustments in your investment plan to remain on course.
Buying A Home
Buying your first home falls in the medium-term time frame and also depends on a lot on your income level. If you have a high-income level and you have adequate savings after meeting all your obligations, you should plan your home purchase early. Your target should be to be ready with your down payment and to have an EMI-paying capacity for the foreseeable future. Depending on the home-buying deadline you’ve set yourself, you can select the right investment instrument. A low-risk instrument such as a balanced mutual fund or PPF is better suited to such a goal.
Contingency Fund Creation
A contingency fund helps protect you a financial emergency. It should be maintained according to your regular expense level. The fund should be adequate for meeting your regular expenses such as EMIs, rent, supplies, utilities, etc. for six to 12 months, in case your regular income was disrupted for any reason such as a loss of employment.
Since a financial emergency can arrive at any moment, it is to be treated as a short-term problem. Therefore, it’s best to create and maintain an emergency fund using low-risk instruments such as liquid mutual funds or bank fixed deposits. The fund size should be evaluated and increased from time to time to mitigate the inflation impact.
Setting Off Regular Expenses & Repaying Debts
Regular expenses like rent, credit card bills, personal loan EMI, school fees, car maintenance, etc. are of very short to short-term nature. You can invest in liquid mutual funds or high-interest Savings Account to get some return as well as to regularly use the fund and replenish it.
It is important that you do not mix your investments with each other which is meant for various goals and keep investment for each financial goal separate from each other.
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