The sudden global spread of the pandemic last year triggered economic problems, leading to corporate pay cuts and layoffs in some of the affected sectors. Such uncertain times only show the importance of an emergency fund and a financial plan to secure the future. It is encouraging to see Indians becoming more aware of financial instruments. However, for an average Indian, financial literacy has not yet become a priority. According to a global survey by S&P, less than 25% of adults in India are economically literate.
Although Indians have shown some inclination towards financial savings (now ~35% of household savings in our country), most save in short-term instruments such as bank deposits, which do not play a role in meeting living standards. These goals don’t just indicate life stages – thinking about them leads to long-term and disciplined savings, and thus better financial results!
How does a goal help?
Most of the people’s approach is spend first then save. Today’s youth, often early in their career, are burdened with credit card payments or EMIs for essential items of life. The problem with this is that there is no money left to save. However, if you set your short-term and long-term financial goals, determine the amount required to save for them, and stick to the plan, then you can achieve these goals without burdening yourself and thereby Become even richer in the process!
However, it is important to ensure that the goals are realistic, time-bound, and made keeping in mind the present and future needs of the family.
Types of financial goals
There are two types of financial goals – short term and long term. Short-term goals are usually 3-5 years. These goals are mostly personal level, such as buying a gadget, buying a car, going abroad for vacation, saving for higher education, planning life events like marriage etc.
Long-term goals are usually longer than 5 years. These include buying a house, children’s education, children’s marriage, retirement planning, etc. One may also wish to leave a legacy for their loved ones. This is also a long term goal.
Process of achieving financial goals
As a first step, you should ensure that your family is adequately protected with a term insurance plan. It’s a small expense, which ensures that even if they lose you, they can continue to pursue their goals and aspirations without money becoming a problem. Although, I mentioned it as a first step, but it rarely happens. Thinking about your death is not a pleasant experience and that’s why people procrastinate. Still, I find it important to stress the importance of a term plan, because without it, it would be like walking the streets of Mumbai on a July afternoon without an umbrella.
Once you have covered your family, you can evaluate the various financial savings and wealth creation tools available, such as FDs, Post Office Savings Schemes, Life Insurance Savings Products, MFs, Equity, PPF, EPF, NPS etc. Although some of these offer tax benefits, this should not be the sole reason for choosing a particular instrument. Several factors such as age, income, risk appetite and your assets and liabilities should be considered while choosing an investment instrument.
If this starts to seem cumbersome, you can take the help of a financial planner or use tools and calculators that are freely available on financial websites. These help in better understanding one’s risk appetite, short-term and long-term needs, enabling one to identify his goals.
There is a need to save/invest regularly, disciplined and systematically to achieve long term financial goals. The power of compounding plays an important role in the process of wealth creation in the long run. Life insurance plans, NPS, etc. are suitable for such goals. Also there are different types of products, which correspond to different risks.
Conclusion
Outlining your financial goals can get you started in the right direction. With a disciplined approach, regular monitoring and appropriate asset allocation, you can achieve all of these.
