Random investment may provide you with feel-good-factor for a while, but it certainly doesn’t help you achieve goal. When you assign a goal to any investment, it automatically becomes more focused and effective. Knowing that you are saving or investing for can make all the difference between achieving your financial goal or not.
Assign a goal to your investments and savings so that you can justify the sacrifices you are making financially today to achieve it. Without a future purpose assigned to your investments, staying disciplined with your finances can be difficult.
For example, if you assign an investment with a goal to help for children’s education, it would be difficult for you to liquidate it. You wouldn’t want to jeopardize your children’s education to go on a vacation. If such an investment is not assigned a goal, you would probably liquidate it when you are tempted to buy or do something that needs extra cash.
It is goal-based investing that helps you stay on track and ensure that you are systematically taking care of all your financial responsibilities without getting distracted or diverting your focus. It is an effective way to manage your finances and is backed by scientific studies as well. Here are the few reasons why goal based investing is so effective –
Achieve More While Saving Less
When you are able to identify your long-term and future goals in advance, it becomes easier to allot money to investments that are goal-oriented. Goal based also investing calls for doing research to look for investment tools that would help you achieve your financial objectives. Identifying long-term goals and investments that help with achieving it mean you have to invest less from your own pocket without compromising on the end goal. It is because when you start investing early for long-term, the returns are much higher.
Get Generous Returns
If you have sufficient time in your hands when it comes to investing, you would be investing more into an aggressive asset class for the long-term and medium-risk asset class for short-term. It would help in achieving optimal returns because when you start saving and investing early, there is a considerable amount of time to negate the market volatility. It basically leads to optimal growth of your investment portfolio irrespective of how the financial markets fare on a daily basis. Goal based investing would ensure that you know the numbers in advance and channel your investments accordingly while factoring the component of time appropriately. You will not have to worry about whether the market is bullish or bearish because you are not looking to liquidate the retirement fund immediately anyways. It helps you get a perspective that leads to making you a seasoned investor.
It is human psychology that we believe in tangible things rather than just a few numbers. When you set goals with tangible interest in mind, you are more likely to be motivated to do it. Thus, setting measurable goals will allow you to achieve them rather than just aiming at reaching a number. Always set a purpose for your savings and you are surely going to achieve it without any issues.
Splurge Without Feeling Guilty
When you know that you have been saving enough to meet your financial goal, you will not have to think twice or feel guilty about splurging a bit. Since you work hard to earn that money, you should be able to spend on yourself once in a while. You should also be able to meet the needs of your partner and your family members too.
It is quite easy to get into the vicious cycle of debt repayment when you do not have any plan. Avoid using your credit card anywhere and buy only what you can afford. It is best to skip all the EMI, and the credit card offers you see at stores and pay only through your debit card. Even though these offers might feel lucrative, it is not always so as you will end up paying more in interest.
When you create financial goals and start savings towards them, you will be able to not just meet your needs, but also avoid debt. You will enjoy everything you have always wanted – your own house, paying for child’s education and retiring on your own terms.