Identifying Financial Goals

Financial planning is heavily based on your ability to set clear and comprehensive objectives, which focus not only on predictable but unpredictable events as well.

There are many important goals that an individual must keep in mind while doing financial planning, but the most important for anybody is his child’s education. The cost of education in today's age is high-priced. However, if you have planned for it, the cost may not prove all that arduous.

If you start planning and saving for your child’s higher education since the time he enters a play school, you will be able to save sufficient amount for him till the time he leaves high school.

Suppose that an MBA programme of 2 years in a well known business school costs Rs 500,000. The age of your child is just 5 years now and he will start with his MBA at 20. This means that you will have 15 years to plan for your child’s education. Presuming that the cost of an MBA degree appreciates at 10% per annum, the degree after 15 years would cost Rs 2,088,624. This may seem a tough job to you but not when you plan for it.

Planning for the future

Amount you wish to accumulate (Rs)
2,088,624
Tenure (years)
15
Assumed return (CAGR)
12%
Amount to be invested annually (Rs)
56,026
Amount to be invested monthly (Rs)
4,430

This amount will not be tough to achieve if you have your objectives and goals in mind. Since you are aware of the amount needed to be saved for your child’s higher education, its time to start investing in order to achieve the target. If you invest regularly in well managed diversified equity funds, the Rs 20 lakh education fees will not appear so daunting.

On the other hand, if you have not planned for this astronomical sum in advance, paying for your child's education at that stage would prove to be a colossal task for you.

The above approach of planning well in advance can be useful for other objectives as well such as buying a property or your child's marriage among others.

Setting realistic and tangible goals and working towards achieving them on a regular basis is the key to successful investing. An individual should have multiple portfolios, each catering to an earmarked objective. While setting objectives could be an easy task, the challenge is to get the right asset allocation.

A competent and dependable investment mentor plays a chief role in this, but more importantly, the responsibility of planning well in advance to realise your objectives is on you.