Setting goals are what drive us to take purposeful steps towards achieving them, and the same applies to achieving our financial goals. Building a house, planning to save taxes, buying a car, Children's education and marriage, building a retirement corpus, we have many goals that have financial value attached to it.

The process of planning for the achievement of these goals is called Goal based financial planning. It is the first step towards achievement of your dreams and comprises important questions like:

a) What are your goals?

b) How much time do you have left to achieve these goals?

c) What do the goals cost as on date?

d) What would the goals cost after you factor in the inflation?

e) What should your investment be today to achieve the corpus that can help you achieve the goals?

f) Who are your dependents and how much risk can you take in investments you do?

These questions are just the beginning to your goal based planning. You need to go to the finer details like if you are planning for your child's education then where do you expect your child to study? Education costs in India are rising just like in the other countries, and a university degree abroad will cost way more than what it can cost in the home country. These are important decisions and require in depth analysis of your goals based on age, the number of dependents and the nature of goals.

The important steps in goal based financial planning are:

1. Identifying goals:

This is the first step of goal based financial planning and at this stage, all the goals are to be written down so that you can get a direction in which you need to move.

2. Assigning a budget for each goal:

The second obvious step is to assign a monetary value to each goal. How much is your monthly expense today and how much more will you need when you are retiring? When you assign the budget for each goal, you will get a ballpark figure of how much you need to save to achieve the goals you laid down in the first step.

3. Determining the risk appetite:

This next step refers to your understanding of how much risk you can take? If you have many dependents then your risk appetite will lower. Similarly when you are younger, you can afford to invest in equity markets as you do not have many dependents and you have a longer time horizon to save. Once you determine your risk appetite, the next step is to plan for the allocation of assets based on your disposable income.

4. Asset allocation:

In this step, you need to clearly allocate your fund for investment between different asset classes like debt, equity, gold etc. This allocation will depend on your risk appetite. You need to remember that the higher risk you take, the chances of returns are higher. However, your age and the number of dependents on you will determine whether at all you can take those higher risks. In that case the allocation will lean towards a debt heavy portfolio that give you safety of steady returns.

5. Preparing a plan of investment:

The last step in the goal based planning is to prepare a plan of instruments. The market today has a lot of options and your financial planner can suggest to you the best mix of mutual funds, ELSS, debt funds, bonds, ETFs or even real estate to invest in. Your investments mark the beginning of a stress free financial journey.