How to set financial goals? Most people get this all wrong
27th April 2018

A conversation with God goes like this…

God – Beta, I am so happy with your tapas. Tell me what you want. Ask for 3 things.

Bakth – I don’t want to work for anyone else

God – Okay

Bakth – I don’t want a 9 to 5 job

God – Okay

Bakth – I don’t want to live pay check to pay check and run the rat race

God – You haven’t told me what you want beta. One last chance, what do you want?

Bakth – I don’t want this miserable life as a corporate executive, answerable to my boss in the morning and wife in the evening and I don’t want to grow old paying EMIs

God – Tathastu

God disappeared. Bakth finds himself in the Himalayas wearing saffron robes and donning long matter hair.

End of bad story.

Most of us are like this bakth, we only know what we don't want. We set goals for our investments that way too – I don’t want to take too much risk, I don’t want to pay taxes... We know little about what we do want.

Some reprieve does come with setting financial goals that relate to your life events such as children education, future retirement home etc. But I have some problems with setting goals that way while making investment decisions.

Let me explain.

The goal based financial planning approach

Many financial planners advocate setting life goals–fleshing out every small or big life event to the micro minutest detail on a timeline. Give the goal a name, set a time, assess the amount of money required to meet the goal, study up your risk profile and come up with a suggestion such as –

“You want to buy a bicycle that will cost Rs.4000/- after 43 months?” Do an SIP of 237/- rupees in an asset allocation of 30% equity, 20% debt and 20% gold, 20% real estate, 20% commodities.

The life planning approach

A more evolved and refined way to set life goals is life planning. I am a big fan and love the way goals are set in the life planning process. The well acclaimed methodology goes into the deepest recesses of your consciousness to ‘set goals that make life meaningful’. When mortality stares at our face, our priorities get clearer… I agree.

At the end of the goal setting exercise, you are super charged up, have a twinkle in your eyes and dreams in your heart.

Okay, now what next? Most advisers, have little idea on what they should do with these goals now. And with the limitedresources their clients have, how do they plan to achieve all of the basic life goals and then make way for the self-actualizing goals?

They slip back into doing goal based planning like buying the cycle.

So there is buying the cycle, putting the kids through college, refurbishing the house, retirement and starting the NGO. And there are different strategies (and portfolios) to achieve each of these goals. And a mile long list of to dos.

And when you have too many things to do, you know what you are most likely to do? Nothing.

Life goals are moving posts

You painstakingly save up for your children’s education thinking they may study to be a doctor or an engineer or go abroad to one of the Ivy League universities. They end up studying something that doesn’t cost much – like become a Chartered Accountant. You planned retirement in your home town but your spouse wants the lifestyle of a metro city and divorce is not an option. Stuff happens.

Life goals are moving posts. There are no hard and fast rules and thank God it’s that way.

Imagine you need water in the kitchen for cooking, washing and drinking. Will you dig 3 separate wells one each for cooking, washing and drinking? Or would you put in all your efforts to dig one deep well. And when you find water there, use it judiciously for whatever you want. What is a better idea?

Goal based financial planning sub optimises returns in your portfolio.As a friend once commented on this activity – “losing the woods for the trees”

So, what is a better way to set financial goals?

The mother of all goals

A big fear most of us have is the fear of having to cut down lifestyle – move to a smaller house, travel in the trains and buses, skip the starters. If you are like most people, that will give you the chills. And that is exactly what not having enough will mean.

If the money you are putting aside for your future isn’t earning you at least ‘inflation’ rate, you have to be worried.

Beating Inflation with your investments is the single biggest goal of any financial planning exercise. Inflation is the villain in your story. You and your adviser together should understand your personal inflation (given the things you spend on),strategize and come up with ideas to ensure you stay above the inflation rate.

Estimate how much wealth you can create in your lifetime if you put away as much as you can, into assets that can give you returns > inflation. Check out what that number could be. And getting there is your goal – do all that you can and give your money its best shot. That is the mother of all your goals.

If you reach there, you will be home. Your cycle, your retirement, your NGOeverythingmay all get done. And you would have done your best. It will be the deep well you dig for your kitchen.

A GOAL or a TARGETthat is a clear, unambiguous and inspiring number is what you need to get rich. This is step 2 to your freeway to richness, after you began believing you can get rich.

So, keep it very simple

  • Consolidate all your current investments and put out the number - (CW)
  • Assess how much surplus you have from your income after all expenses - (AS)
  • Use this formula – Potential Wealth you can create = CW *26.46 + AS *161.43

If you are one of those nerds, try to reverse work the numbers and make sense. Or if you don’t have the time just write in to better understand.

Happy Goal Setting and Happy New year!

Aditya Shinde
15 September 2017
All is ok, but why all taxes are imposed on common man without any economic discrimination, why should poor & rich person in same get slab,do u think common man show his electricity bills, praperty tax, water tax & etc, as input tax? Actually it is favour to govt administration & business simplifications, this is not a favour to common the basic nessacity commodities like packed food items taxes are raised. Is it good to public?
Leave a Comment
You may also Like

Ownd by Error People Squad


4 different kind of wealth you need to live a rich life!




What is your stress level I asked my friend? On a scale of 1 - 10, that would be 11 she said.


Living a rich life, build

3 things you need to do before quitting your job

3 things you need to do before quitting your job


Are you planning to quit your j

How to retire early in your 30s with a million $ in the bank!

That morning, he'd woken up on his own, not when an alarm clock told him that he had to. He'd read the news for 30 minutes, went on a 7-mile run, napped and "watched the ceiling fa

Does ‘Investing’ sound like Greek and Latin to you?

My laptop had crashed.

I visited one of the branded stores to buy a new one and something horrible happened there. You should listen to this.

A sales person walked up and asked

I can’t have enough of her!

Wind in the hair, hands on her hips, chin up in pride, a casual smile on her lips. She is standing up to the raging bull on Wall Street. I don’t know if she has a name yet. People call here &

Management Lessons from the Mighty Hoysalas

Last year I went on this awesome road trip. From Mumbai all the way to Bengaluru by road stopping over at Hubli, Chikmagalur, Coorg and Mysuru. Given my affinity to anything historic the tr

Dad, Grand dad and Money

I am convinced that mankind is regressing generation after generation. I am a living example.

My thatha was a government employee, who used to proudly call himself “governme

What is stopping you from getting rich?

Maybe your giving habits are..

I was recently chatting up with a friend. The conversation turned towards money and investing and filing tax returns.

He casually mentioned t

Rich is awesome... if you let it be

“Helloo… I am sorry????  Not everyone wants to be rich”

“I am happy being not rich. I have been taught to be kind…. So I cannot be rich&r

Can "personal finance" ever be simple and uncomplicated?

Have you ever wondered why ‘personal finance’ sounds so very complicated?

I’ll tell you.

We just love to complicate things.

There was a time when I f

Bye Bye 2016! The New Year will be awesome.

Ever been on a roller coaster ride?

It freaks us out, makes us want to throw up and reminds us of our long forgotten prayers. But the most amazing thing about it is, that it ends exactly

Tremendous investing success comes from knowing this..☀☀

I rushed to the washroom and made that call. I tried hard to hold my tears till I was safely inside, and the moment the line connected I was between sobs and sniffles declaring that I wanted o

LTCG and Grandfathering explained

Please find below an update on the key changes in tax laws applicable to Mutual Funds in the Union budget 2018:

  1. Long Term Capital Gain to be taxed at 10% without index

The Truth about GST that nobody is telling you…

Tomato sold for Rs.100/- yesterday.

A suburban branch of a restaurant chain increased the price of Idli vada to match that of their more premium outlet. When asked why, we were told &ndas