How to do goal based investing

Setting up a goal is something that no one does these days. I am asking you all to set a financial goal.

Every time I ask someone – Why are you investing? What is the purpose of your investment? 90% people will answer to grow my surplus money.

I have money lying in my bank account. I am just spending too much. I thought it was time to start investing.

My next question is ‘for what do you want to grow your money?’ Their answer is to become rich or help in a financial need or to travel. Travel is a more focused goal but becoming rich? Isn’t everyone working to become richer than what they are today?

In cases, where your goal is more focused and clear, you will be in a better position to achieve it than your investments where it is not.

When you know where you are going, you are halfway there.

I know it is extremely difficult to sit with a pen and paper and jot down your financial goals. However, the difficulty of the process does not reduce the importance of the same.

I have listed below a step by step process of identifying your goals, requirements, money that you need and the products into which you must invest to achieve your goals.

What do you want to achieve in life?

I am sure you have been asked this question by various people ‘What do you want to be when you grow up? Where do you see yourself in 5 years? What do you want to do in life?’ These are all your various goals that people want to know.

What are the things that require money to be achieved – i.e. financial goals?

Yes. All goals need money but all goals are not financial goals. Wanting a promotion at work, Best in your field, learn a new hobby or activity are all personal and professional goals which does not require too much investment or any investment of money from your end.

Owning a  house, traveling to Europe, buying that car, your child’s post-graduation are some examples of goals which require a huge investment of money from your end and are called financial goals.

Hence, make a list of all your goals and from that highlight your financial goals.

Prioritise your goals - difference between Need and Wants?

It is very important to prioritise your goals based on its importance and requirement.

Needs are such things that you cannot do without and cannot be canceled, such as your child’s education or your first house.

Wants are things which you desire but can do without them such as a vacation, your second home etc.

Segregating your goals into needs and wants will help you prioritise them better. All the needs can them be numbered based on their importance followed by your wants.

How much money do I need today to achieve these goals?

Once you have made an entire list of your goals and sequenced them, you must identify what is the cost of achieving those goals. For example, if your goal is to buy a car, you must identify which car you want and how much would it cost. 'I want to buy a car like I20 and it would cost me 7 lakhs INR today' - this a well-defined financial goal.

Where you are estimating the cost of goal because you do not have an exact basis to calculate it, always consider the amount on the higher side.

By when should I achieve these goals?

The fact that it is a goal, it means it is futuristic and you do not have sufficient means to achieve it today. Hence, you must identify and apportion a realistic timeline towards your goal.

For example, I want to buy a car in next 2 years.

  • Goals less than 5 years: Short-term goals
  • Goals between 5 years to 10 years: medium-term goals
  • Goals more than 10 years: long-term goals

Adjust the Inflation

Given that goals are a futuristic, the current cost that we have associated to our goals will obviously increase in the future because of inflation. Identify the inflation rate towards your goal. The inflation rate is not the same for all types of goals; it varies depending upon the market conditions and the goal.

After knowing the inflation rate and the current cost, you will be able to compute the future value of your goal.

It is very important to identify the correct inflation rate. If you take a lower inflation rate your goal will cost you more than what you estimate and if you take a higher inflation rate, the future cost may scare or reduce your confidence to be able to achieve the goal.

Asset allocation based on the goal, cost, and tenure

Once you know your goal and its value, it is time to identify the investment products.

The tenure of your goals will help you to identify what asset class you must invest in and in what ratio.

  • The term is less than 5 years – 100% Debt
  • The term is 5 years to 10 years – 40% Debt 60% Equity
  • The term is more than 10 years – 30% Debt 70% Equity

This is a very general method of asset allocation. It may vary depending on your risk taking capacity and ability. Hence, it is important to analyze the same for oneself.

Portfolio Return Expectations

Return expectation from each class of the asset is as follows:

  • Equity: 12%
  • Debt: 8%

You will have to invest money in your goals based on the tenure and asset allocation. Each goal will not have one investment but may consist of many investments some in equity and others in debt. Hence, it is important to compute the return expectations for the entire portfolio, to be able to compute the exact amount you must invest to achieve your goals.

For example, my goal of buying a car is a mid-term goal, my asset allocation will be 40:60.

My portfolio return will be (40% * 8%) + (60% *12%) = 11.2%

How much money to invest?

This is the most crucial part, the entire computation of the above working will lead to identifying how much money you need to invest to achieve your goals.

There are various ways of investing but it is better to do it in a systematic manner. You can invest as a monthly fixed investment amount or invest annually with a fixed percentage of investment increasing per annum.

SIP - 7900 per month invested for 7 years will give you a return of 10,14,000 @11.2 %.


This method can be a bit complicated when followed step by step especially the last step of computing the actual amount that one needs to invest to achieve their respective goals. However, it is the most defined way of achieving your goals. There are many software used by us - financial advisors where the software does the same calculation for us. When you will sit with an honest financial advisor, the first thing that they will ask you is to define the goal. There is no plan without a goal and hence, such a working is extremely important for your financial planning.

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