Are you smart enough to save money for your SMART goals? Smart goals are those which are “Specific”, “Measurable”, “Attainable”, “Realistic” and has a definite “Time period”. For instance, your SMART goal could be to accumulate Rs 15 lakh for your daughter’s marriage in the next 20 years.
Naveen Kukreja, CEO & Co-founder of Paisabazaar.com says that strong financial planning tells you what you should do currently to be where you want to be in the future.
He adds,“Be it leading a worry-free retired life, buying your dream home or giving your children the best education, you need to plan each of your life goals well in advance to achieve them timely. This requires five steps — setting measurable goals, assessing cash flows, fixing time horizons for goals, deciding the investments required to achieve them and finally, regular review of your financial plan. The last part enables you to factor in things like inflation, change in lifestyle, income or the goals themselves.”
Here are five simple steps for you to create SMART goals to build a good corpus in future.
Plan your financial goals: For starters, you need to assess your financial situation and investment goals. Assess your level of risk tolerance and accordingly time your goals. Your decision to make any investment should be related to a particular financial goal. These goals vary from individual to individual and of different age groups.
“Remember that needs vary depending on your age, investment horizon, and capital requirements. A fresh-out-of-college professional will have very different needs compared to a professional in their 30s or their 50s. So keep all these factors in mind when you plan your portfolio,” said Ajit Narasimhan, Category Head, Savings & Investments, BankBazaar.com.
Construct portfolio: The best way to construct a portfolio is to follow an asset allocation framework. While following asset allocation you can easily diversify your investments in equity, debt and cash or cash equivalents. The more will be your diversification, the less risky your portfolio will become.
“Once you know the amount and timeframe required to achieve your goals, it becomes easier to set an optimum asset allocation strategy for your investments. Asset allocation is the process of distributing your investments across various asset classes, such as equities, debt instruments, gold among other things as per your risk appetite and time horizon of your investments,” added Kukreja.
Implement your plan through investing: Once your portfolio plan is constructed, you need to start investing to achieve your goal realistically in future. Do not deviate from one goal to another. You should be very specific about linking your investments towards a particular goal because every investment made through various asset classes do have their own objective. For example, if you know you have more than seven years to realise a particular financial goal, then you should invest in equities or equity mutual funds, since they outperform other asset classes, particularly fixed income instruments like debt funds and fixed deposits, in the long run.
Review and monitor your plan: Analysing the situation of your financial goal from time to time is a must. A well-constructed portfolio requires reviewing of its funds on a regular basis. Monitoring of schemes should be done on a semi-annually or on an annual basis taking the help of a financial adviser. This process helps you in achieving your goals successfully without taking much risk.
Create a good relationship with your adviser: It is advised that you should not plan your goals by yourself, always take advice from the financial doctors who can guide you towards the right path to achieve your goals successfully.
This is the foundation of setting up your financial goals for a lifetime. Do not forget that it’s your hard earned money which you want to invest and grow to create good wealth in future. To get fruitful results in future, you need to disclose all relevant information to your adviser.