Almost all the investors have one common question - What instrument will give me the highest rate of return? But should this be the actual concern?
Personal finance's basic principles suggest that individuals should start by being introspective. Instead of looking for high-paying investments, one should first think about financial goals. Your financial goals will clearly outline your objectives and help you plan your journey in a better way. You can decide where to invest, how to invest, and what your expectations are. A clear financial goal or smart financial goal will help you create a solid financial plan, something which will be easier to execute. Here are some ways to create a SMART financial goal.
Definite: Individuals must have a clear financial goal in their minds. For example, buying a house is not a clear goal. It makes sense if you can say that you are arranging down payment to buy a 2BHK home in Bangalore suburbs. Specific goals will ensure there is an emotional connection with financial goals, and these goals are more likely to be met.
Measurable: It should be able to give a value in money, along with other factors. This helps an individual understand his/her goals. The above example would show that s/he would eventually buy a home worth Rs 80 lakh. A 20% down payment would work out to Rs 16 lakh. You can adjust your goals based on how much money you have saved and how the prices of the financial goals have changed. If you have a goal to raise Rs 16 lakh, but the market prices rise above your expectations, the money value should be included in your financial plan.
Obtainable: Financial goals must be realistic. Sometimes, the goals may not be achievable in the near future. One can use his/her time to make these goals achievable. If some funds are allocated to high-return risk assets, it may be possible to achieve goals that seem impossible for people with low-risk profiles. In the above example, a person with a monthly income of Rs 1 lakh and a monthly savings of Rs 30,000 appears to have a difficult goal to reach the goal of raising the required amount of money before the end of the financial year. If the individual works for a longer period of time, however, his goal will be possible. You should invest approximately Rs 20,000 each month if you want to build a wealth of Rs 16 lakh over five years. In the context above, these numbers are achievable.
Realistic: It is important to be realistic about your financial goals. A person earning Rs 1 lakh per month can build a mansion in Bangalore. However, it is impossible to do so in the context of high property costs and low income. In such situations, only a miracle can save the day. It is really not a concern if you keep alive your goal of purchasing a 2BHK. But if you try to accomplish it in a short time, along with other goals like going on vacation abroad or arranging down payments for a luxury sport utility vehicle, it may become impossible.
(DISCLAIMER: The views expressed are the author’s own and have nothing to do with OTV’s charter or views. OTV does not assume any responsibility or liability for the same.)
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