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Guide to Mutual Funds

Understanding Your Financial Goals

By now, we have discussed the various aspects associated with mutual funds. Now let us come to You – the investor. In this entire section, we will cover myriad aspects of the journey of an investor to help you become successful in your investing endeavours. 


To start investing, first and foremost, you need to understand the objective of why you are investing and define your financial goals. This is an essential step,and hence we will cover it in detail in this chapter. 


What is a Financial Goal?

Financial goals are an investment, savings and spending targets that you want to achieve over a specific period of time. This is vastly affected by your age and your life stage. For example, for someone who has just started working, the primary goal may be to buy a house. On the other hand, for a couple with a young kid, the goal may be saving up for the child’s higher education. 


Why Should You Have Financial Goals?

We all have financial commitments. Some may come soon; others may come many years after and some may come suddenly. While we cannot predict uncertainty, defining the first two are important to understand- 


How much should we save, and how much can be spent?  

Having financial goals helps us to understand what may come in the future. Saving up for them can be a great way to remove the anxiety of facing the sudden pressure of a financial expense. 


Of course, sudden expenditures such as medical emergencies may come anytime. Therefore, saving for an emergency fund can be very beneficial in such scenarios. 


Different Types of Financial Goals


Based on time, financial goals can be of three types:



Short-term Goals

These are goals that you want to reach in the short term, such as within the next two years. These may include going for a vacation, buying a television, upgrading your phone, etc. By adjusting your spending habits and living within a budget, these goals can be easily achieved. 


One of the major steps towards achieving short term goals is to stop all kinds of unnecessary spending. A good way is to ask yourself certain questions such as:

  • Do you need to eat out tonight or can you cook at home?
  • Do you need so many premium OTT memberships?
  • Is it essential to go shopping right now? 

Medium-term Goals

Medium-term goals are ones that you will face in 3-5 years and can be slightly more expensive than day to day goals. However, with proper savings and investment discipline, it should not be difficult to achieve. 


Smart planning plays a significant role in achieving these goals. However, it is also essential to set realistic goals such as the type of house you can afford to buy rather than buying your dream house. 


Long-term Goals

These are goals that you want to achieve in more than 5-years, such as creating a retirement fund, buying a new home, saving for your child’s education, etc. We understand that you may not always have the visibility for what is going to happen 10-year hence. Start slow and develop your long-term goals with time. 


It is also important to understand that our goals change over time. Creating a source of income after retirement may not be on a 25-year old’s mind, but a 45-year old may be thinking about it. Keep your goals flexible and add on to them as you grow older. 

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