Why and How to Make Goal-Based Investments?

Imagine running in a race with no finish line. It will make no sense to the runner if he/she does not know where to end. If a finish line is set, the runner can set ones running pace accordingly and the possibility of completing the length is almost certain.Similarly, making investments without a financial goal could lead to under-utilization of your savings and you may end up locking your money with no purpose. You may have desires to go on a vacation, own a dream house, a dream car, a gadget, higher education or may have responsibilities like that of education of your children. Irrespective of ones age, at every stage in your life, there will be something that will require you to be financially prepared for it, and this includes medical emergencies.One cannot achieve these goals by just having enough money to get by the day, which is primarily why you should make goal-based investments and give yourself and your loved ones a better life. Firstly, the financial plan cannot be a one-time thing, it needs to be re-evaluated often. Age, risk-appetite, financial responsibilities and accessibility to abundant funds are all factors that you should link to your goals. As mentioned before, you cannot run without a finish line, so decide how much money you will need and how much time do you have to gather that much. List the goals you wish to meet and place a time limit on each. Group goals as: Short term: to be achieved in two years. For example: vacation, car, gadget, etc. Medium term: 3 to 8 years. For example: professional course, house, own business, etc. Long term: 8 or more years. For example: a childs education, retirement. Now that you have your goals laid out, divide your earnings (apart from living expenses) into different types of investments like equity, fixed income and real estate based on risk appetite and the timeline of the goal.Investing in just one type is not a good idea as a risk-free asset class like fixed income will fetch you fewer returns while equity is unpredictable. Essentially, look at the returns as well as the flexibility for each.To achieve short-term goals, for example, you can opt for short-term debt funds, corporate bond funds, liquid funds, fixed deposits, etc. Similarly, for a long-term goal like retirement, you can start a SIP in equity-linked mutual funds.When it comes to buying a home, planning early for the down payment rather than taking a big home loan is advisable.Note: These are just ideas that you can consider and not a guaranteed plan. You can maintain investment cycles wherein you reinvest your returns in less risky instruments. For example, once the recurring deposit matures or your SIP ends, invest the corpus elsewhere in a safer fixed income plan with higher returns. If you get unplanned revenue, like inherited wealth or gifts. You can use these to pay off any of your loans or park them in a fixed income plan like a fixed deposit.The idea is to take advantage of the newer options and better returns opportunities with time. Take advantage of starting early and do not lock your money in an instrument that is giving you minimal returns or is just losing value.