Most of the times we do investments without any particular goal in mind. We don't know that when we would need the money. The lack of objectivity leads to one goal utilizing the funds of another. And some point in time, you might face liquidity crunch due to poor planning of goals.

Are you been investing for years through SIPs, RDs, stocks, bonds, and more without detailed planning of financial goals including child's higher education, wedding, and retirement? If the answer is yes then it is time to take a step back and earmark your investments with short-term and long-term goals.

Here is why you need a goal based planning to manage your money more efficiently.

#1 Identify the required sum

Account for inflation and quantify your goals. Find out the current value of your goal. For instance, if child education sets you back by Rs 10 lakh today then at 6% inflation, you will need to spend around Rs 18 lakh after 10 years. Now, if you need this amount of money in the next 10 years then you should invest Rs 8745 per month in mutual funds assuming the rate of returns at 10%.

#2 Achieve goals with savings

We don't shy away from taking high-cost credit for gadgets, trips, and more. However, if you want to buy a new iPhone then it is always better to accumulate a fund for the purchase instead of using credit card or taking a personal loan.

Even if you are buying a home or car where taking a loan becomes mandatory, it is advisable to pay as much down payment as possible to reduce the cost of acquisition.

#3 Decide right strategy and investment tool

Clarity about the goal and time horizon can help you decide the right investment instrument. You can go for safer instruments like RD and FD for short term goals and for long-term fund requirements you can aggressively invest in equities to meet your goal.

#4 Track the progress and take corrective actions

When you earmark your investment for a specific goal then you can easily track the progress of each. A problem in one investment will not impact your other goals. It helps in rectifying the loss making investment and make it profitable. You can change the investment instrument or take advice from financial expert for course correction.

#5 Exit at the right time

When you know the due date of the goal, you can exit the investment at the right time. For instance, you can start diverting money from equities to debt fund a year prior to your goal to make the capital safe. You can also encash your mutual funds and park them in a fixed deposit.

Goal-based investments will help you meet your financial requirements in a systematic manner.