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Defining your short and long term financial goals

Tuesday February 07, 2017,

3 min Read

Financial freedom to have a good lifestyle is what everyone wants today. And this surely does require you to plan and think of how you want to live, how to spend, what to consume and buy and how to manage daily life . Financial freedom can be achieved only by creating a clear financial plan for you after defining all your goals, dreams and requirements.

Do you have too many financial goals?

Prioritizing your goals will help you identify which goals you want to start working on immediately and requires immediate action and attention. Remember, needs and wants are to be prioritized clearly, with needs always coming first.

Classifying the goals

1. Short term goals are priorities that can be achieved within one or two years. It includes creating emergency funds, saving for an expensive and long vacation, buying a car etc.

2. Medium term goals are goals can be achieved within two to five years. Children education goals or buying a house are some examples of medium term goals.

3. Long term goals requires more than five to ten years to accomplish such as children marriage, retirement living, etc.

Goals should be S.M.A.R.T

Beside these goals, there are day to day expenses and requirements which also have to be met .

Once the individual determines his or her financial goals, be it short term or long term , it is important to set the right investment plan and for this we need to consider crucial factors such as investment horizon, risk tolerance , and profiling the products across the asset classes.

Profiling the Product

Short Term Products: Short term products are basically the products which have either a shorter maturity or used for investing less than 2 year. These products offer low returns contrary to long term products but the capital is mostly protected.

Some of the short term investment products are:

A. Liquid Mutual Funds/ Ultra Short bond funds.

B. Bank Fixed deposits

C. Saving account

Medium Term Products: Medium term products are products, which have a maturity or investment horizon between 2-5 Years. These products offer better returns in comparison to short term products and some of these products also have a level of risk related to the capital. Some of the medium term products are:

a) Corporate Fixed Deposits

b) Fixed Maturity plans

c) Balanced mutual funds

d) Monthly income plans

Long term Products : Some of life’s biggest goals such as children marriage, or retirement planning, requires longer term investment planning thus requiring long term investment products. When we are planning for long term, a good rule of thumb is to be remembered i.e. to get higher returns one must have higher risk and this must be done post proper analysis of the various investment opportunities.

Some of the long term investment opportunities under both debt and equity are :

a. Equity and equity based mutual funds

b. Portfolio management schemes

c. Public provident funds/Employee Provident fund.

d. National Pension scheme (NPS)

e. Tax free Bonds

f. Longer duration of fixed deposit

If you are unable to define your financial goals by yourself, investment advisors and financial planners can help you to prepare the appropriate financial plan for you. Once you answer some relevant questions , and then meet with a good SEBI registered investment adviser, the financial planner will be able to prepare an ideal plan for you and also execute and monitor it for you. Therefore , knowing what you really need and want is the most important step in creating a clear successful plan for your financial freedom.