The value of money varies depending on whom the question is asked. It might mean financial independence for some. While for others, it may be the ability to live comfortably.
To make sure we have enough money at the end of the day, we all put in a lot of effort. Our money is invested in a number of ways to increase its value. Investing is a form of happiness postponement since the investor pledges to consume less today in the hopes of being able to consume more in the future.
Investing calls for a methodical and disciplined approach to the process of making decisions. It's important to have a plan for investing in order to attain your financial goals. As a result, you must consider the big picture.
Why are you investing? To achieve your goals, one must first identify their objectives, as well as the timeframe for attaining each one of them.
Identify your goals
Identifying your financial goals is the first step in solving the investing issue. Once you've defined your goals, you'll be able to figure out how much and how long you'll need to invest to reach them. Your risk tolerance might be affected by the time horizon you have available to you.
Writing down some ideas on a piece of paper isn't enough to achieve your goals. Before you actually write down your goals, you need to give them a lot of thought. Set attainable, positive-looking goals. When deciding what you want to achieve, take into account your existing financial situation as well as the predicted growth in future revenue.
Divide your goals into short term, medium-term and long term goals.
Short term goals
Prioritise saving the required amount rather than maximising returns in the short-term (6-18 months). For example, you want to buy a car. Car shopping or upgrading to a larger vehicle is something that can be negotiated. Short-term investors can simply postpone it by 2-3 months. However, this flexibility does not mean you should invest in a volatile equity-based vehicle.
Start putting money away in a short-term debt fund that can be accessed at any time. As a result, these funds are extremely liquid and can be withdrawn at any time. They are also less volatile than fixed deposits and offer comparable rewards.
Medium term goals
Because there is more time for growth, it is possible to take a somewhat larger level of risk. Say, for example, that you wish to put money aside for your child's college expenses. As a result, you must make sure that the money arrives in plenty of time. It's a good idea to use equity-based investing if your ambitions are far off.
But if you only have a couple of years to spare, continue with debt for the sake of security. In any established bank, start a recurrent depositing programme. Banks offer a wide range of loan terms, from 3 months to 10 years. Choosing a maturity date at least 15-20 days before you need the money is a good idea.
Long term goals
With a longer time horizon, it is possible to invest in riskier but more lucrative possibilities. We can take retirement as an example. While retirement is everyone's most significant objective, it is also one of the most overlooked.
If you have more than 8-20 years till retirement, you can't afford to keep your superannuation account devoid of equity investments. Even though provident funds and PPFs provide debt protection, you may wish to consider investing in the stock market as a compliment.
Incorporate diversified stock funds that have performed effectively over the long term into your investment portfolio If you're not comfortable with big equity exposure, you can instead opt for equity-oriented balanced funds.
What you've been doing isn't finished yet. But even a well-crafted financial strategy might fall by the wayside if it isn't regularly re-evaluated. Even if someone else manages your money, you still need to keep an eye on it. Planned investments can help you achieve your financial goals, but they must also be protected.