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5 Reasons Why Goal Based Approach In Investment Is The Best
The word investment brings to mind the earning of a considerable amount of money after a specific tenure.
The word investment brings to mind the earning of a considerable amount of money after a specific tenure. However, it is not just the timely deposit which leads to the yielding of returns but proper planning itself. Where one is investing, how much one is investing, and the involved terms and conditions, all these are some of the things which matter the most while opting for investment. Anyone who is unfamiliar with the world of investment, should at first get a rough idea about what they are expecting from their investment. For instance, before investing in mutual funds one ought to learn about what is mutual fund and how are they better or not better than other investment options. All of this foreknowledge adds to the efficiency of the invested sum. Therefore, it is very important to keep a goal-based approach in investment as it enables an investor to take smart, well-considered, and prudent steps regarding his or her future.
Reasons Why Goal-Based Approach In Investment Is Effective
There are many advantages associated with the investments when they are set up as goals. Here are 5 of them:
Effective Use Of Savings
One can understand better how much one is going to save for the future by planning beforehand. For instance, if a potential investor is looking for saving 2 crore rupees for retirement, he or she can effectively take up the daunting task by calculating beforehand how much should be saved. Savings combined with the interest earned on them will keep accruing for the maturity amount. Based on these yearly savings, the distant task of accumulating the requisite sum will seem rather easier. Without planning on investment, the savings in a bank account will not yield anywhere as much as they would with proper planning.
Investing by saving money will eventually accrue into a fortune.
The thing with planning is that it classifies rough ideas into exact data and estimates. To know that one has 10 Lakh rupees in the form of investment is one thing but to know that Rs 5 lakh is for higher education and the other Rs.5 Lakh for further savings is quite another. By planning things in this way, where categories can be assigned on the investment goals, will help one keep themselves in track as to how far the progress has been made and how much more is needed. Without goals in mind, investments might undergo ups and downs due to the contingency of the market or for some other reasons which may hamper the objective of the investment.
With proper planning, funds can be managed properly.
Given the accessibility of purchasing almost anything these days, especially after the arrival of credit cards, one often fails to discipline the expenditure he or she should otherwise be doing. By making goal-oriented investments, one can be guiltless about how much the spending is, knowing fully well that a part of their income is being effectively put to use for the future. This way, both the present and the future can be enjoyed with any financial worries whatsoever. Also, being aware of how much one has to invest on a weekly, monthly, or quarterly basis will make one informed about how much he or she ought to be spending in a given month.
Avoidance of Debts
Credit cards allow easy liquidity and purchasing power therefore it is hard to keep a check at one's expenses. Eventually, one ends up paying loans throughout life whether directly as loans or as EMIs. Planned investments help in avoiding debts. With a goal in mind, one will know the right oncoming time suitable for purchasing a car or a house. The systematic investment strategy will give an investor a properly laid out blueprint of his or her future prospects in terms of material gains and the investor would do really well to follow this path rather than going the other way of immediate spending and burdening himself with unwanted pressure of loans and debts.
Making The Best Choice
Planning things in advance come off very useful in taking correct decisions. Being clear about what the end goal should look like, one would know where to spend, what is mutual fund deposit requirement, which stocks to buy, what funds are most compatible with one's income, etc. Based on the present income, an investor, in this way, can help himself or herself by allocating requisite funds in investments without much compromising on his standard of living. Lack of long term goals can make the balance sheet displaced and eventually may become a bane rather than a boon. Therefore, it is always best to decide in advance what the end result one is expecting and how to achieve that.
Things To Add To Your Planning
After learning the relevance of goal-oriented investment, it would also be helpful to know about what things an investor should make as goals for his or her investment.
Emergency Fund: The first thing about any planning for the future involves keeping an emergency fund. This fund should not be utilized for any other purpose other than that of an emergency. This fund ensures that an investor's planning is not hampered as a result of an unforeseen and uncontrollable event.
Set Goals: It goes without saying that goals need to be set for optimum utilization of investment. Compatibility is the key factor here, knowing about what is a mutual fund or any other investment mode will make one understand what goals they can set for themselves.
Choose The Right Option: It is important to pick the right investment options. Searching online about investments such as what is a mutual fund, what is RD, etc, will come off as a great help. Based on such knowledge, an investor will get the right idea about what is going to be effective for his or her short or long term goals.
Thus, with goals set in advance, one can form a clear estimate about various things. An investor, for instance investing in mutual funds, would learn what is mutual fund benefits, what is mutual fund deposit requirement, what is mutual fund policy, etc. This eventually will enable him or her to make the right decisions regarding his investment tenure and the schemes to opt for. As in any other field, planning will only make the performance of an investor's fund more effective and efficient.