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Goal based planning is key to financial success

Risk profile, financial goals should decide investment options THE risk profile and the asset allocation are the two major planks on which the investment should be structured

FINANCIAL needs vary from individual to individual and depend on one's age, lifestyle, risk appetite, future goals, family structure and income. Focusing on future financial needs is even more crucial because of their uncertain nature.

Age remains the best differentiator between two investors and it is easier to understand the needs as one passes through various phases of life.

Risk profile and asset allocation are two major planks on which one should structure investment.

If you are a young adult who has just started career after formal education, then chances are that you would spend a lot on your lifestyle and personal expenses like movies, clothing, fuel and dining.

This behaviour may impact your savings habit. As the time value of money is ever decreasing and inflation is expected to be high, it is always advisable to start saving early in one's life.

Most investors forget the fact that saving is a necessity and must be practised by individuals as no one ever has gone bankrupt in his/her life because of the habit of saving.

Although at an young age one may not have many dependents, but you still may have old parents to look after. It is also possible that you are living with your family and do not have the burden of rent or home loan. At this age, investments must be directed towards funds for unforeseen events such as a disability or critical illness.

Apart from that, if you start planning for retirement at this age, you would be able to accumulate substantial corpus at the time of retirement without any stress in the following years. The need is also highlighted by the fact that life expectancy of individuals at retirement is rising constantly. This means that you need to save much more to sustain yourself in old age.

As age increases, responsibilities also rise, usually so does the income, outlook towards life changes and the tendency to save and invest takes priority. Supposing you are between 28 40 years, the family structure will have a different shape with wife and, perhaps, one or two kids.

Although you might be clear about your financial needs and the options available to fulfill those needs, you will still need to be cautious not to make any mistake like opting for a low yield investment option or taking an insurance policy, which does not fulfill your purpose.

At this age, your priorities should be to save funds for emergency, which can be used in case of a job loss or treatment of any family member. Basically, this fund should be sufficient to support the family for six to eight months.

In case you have taken any debt or long-term loan, then planning for repayment of that loan is crucial. It is better to develop a strategy well in advance to repay a home loan, personal loan and any commercial loan keeping in mind the possibility of death of the earning member in the family.

Child's higher education is another event which may cost you substantial amount of money. If you belong to an even higher age bracket, say 4155 years, then your focus should be on investing in financial instruments, which will keep your investment safe and at the same time generate income after retirement.

Since the investment horizon is not too long at this age, a more conservative approach is advisable while making investment decisions.

If you are approaching retirement, then the financial burdens will take a different shape and demand for regular income will take precedence.

The need for assured streams of income for the surviving spouse should also be kept in mind.

Final expenses are another critical aspect, which arises in the final days of any family member.

This may also involve the expenses for treatment of any terminal illness, expense on final rites and certain typical expenses that are present in almost every religion.

Happy Investing!!

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