If you see the world there will be always two sides to everything. We know that a coin has two sides heads and tails but the coin serves only one purpose i.e to buy things. Similarly, if you take investing there are two sides to it i.e goal-based investing and non-goal-based investing but ultimately they serve only one purpose which we shall discuss in short below.
GOAL-BASED INVESTING
As the name suggests, investing purely based on certain life goals like child education, marriage, vacation, buying a house or a car or a bike, etc is known as Goal-based investing. For example, let’s take the goal of buying a house in the future(for example 15 years from today). The house you wish to buy will cost 85L today but after 15 years due to inflation, the price of the house might also be increased. If we take inflation as 4%, the price of the house will be 1.5 crores in the future. So ideally you need to save 1.5 crores to buy a house in the future. Keeping all these points in mind you will be allocating your savings in such a manner that after 15 years you will be able to afford the house.
The next question in your mind would be how much should I save every month to reach the goal of 1.5 crores? Don’t fret, in this digital world, we need not calculate anything manually as a plethora of online tools are available to make our lives easier. I have taken one such tool i.e ET money SIP calculator where you need to enter the goal amount and it will tell you how much you need to invest every month to achieve your goal. I have entered the above-explained house goal scenario in the SIP calculator which is shown in the below screenshot and it tells me that every month I need to save ₹30,338. The ET money will suggest funds based on the investment strategy you have chosen but you need not invest in those funds necessarily as you can always do your own research in picking the funds and invest in them or consult your financial advisor to get more clarity while choosing a mutual fund to invest. Go to the ET money site, Click the I know my goal amount radio button and then enter the I want to save and then in a period of and adjust the inflation you need, BAMM!! your goal amount and the monthly investment required will be flashed.
NON-GOAL-BASED INVESTING
In Non-Goal based investing, people don’t have any idea why they are saving but just for the sake of saving they are saving. I personally follow Non-Goal based investing because I don’t have any commitments in life yet or any goals and I don’t have a purpose to save also but I like the idea of saving and it gives me immense pleasure.
Why is it important to save even if you don’t have any goals? We need to understand that even if you don’t know why you are saving, the earlier you start investing the more you can reap the benefits of compounding. For example, as shown in the below screenshot if you save ₹15000 every month for the next 15 years your net worth would be 75L at the end of 15 years and that is the power of compounding. If you see the bar chart below the gain would be less in the initial years but in the end, the gains would be massive due to compounding. I have explained in detail about compounding in this article. I am stressing about investing even if you don’t have a goal right now is because in the future you can utilize your savings/investment for anything you want at that point of time.
CONCLUSION
I hope you got some clarity on the goal-based and non-goal-based styles of investing. No matter whether you have a goal in mind or you don’t have a goal, just start investing and reap the benefits of compounding.
Are you a goal-based investor or a non-goal-based investor? Tell us in the comments section.
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I am a non goal based Investor as well.