Goal Based Financial planning: managing your funds as per the goal based that directly links with your life goals: like paying your child's education fees, owning a home or saving for retirement.
This approach is different from traditional financial planning, which is based on returns; because goal-based planning identifies specific goals and classifies them into short-, medium- and long-term time frames (0 to 3 years), assigns target amount and timeline to each goal, and allows you to choose investment options that match your risk tolerance and the corresponding time frame, longer-term goals such as retirement can be fulfilled through higher-risk investments like equity mutual funds whose returns may eventually be higher, while short-term goals like an emergency fund can be met with low-risk instruments like liquid mutual funds. Goal based planning keeps you on track, keeps stay calm and reduces stress with the clear intention, and giving a clear action of plan with right mindset.
| Goal | Time Frame | Risk Level | Suitable Instruments |
|---|---|---|---|
| Emergency Fund | Immediate | Low | Savings account, liquid mutual funds |
| Vacation | 1-2 years | Low | Short-term debt funds, recurring deposits |
| Down Payment for purchasing house | 3-5 years | Medium | Hybrid mutual funds, debt funds |
| Child's Education | 10-15 years | Medium-High | Equity mutual funds, PPF |
| Retirement | 15-30 years | High (initially) - Low (later) | Equity mutual funds, NPS, EPF, annuities |