How and Why to continuously monitor your financial goals…

Once your financial goals are defined and set, they need to be monitored continuously. The monitoring of goals is essential for a variety of reasons. Firstly, your goal posts may have changed and hence you may need to tweak your goals as well as your financial plan to achieve the same. Secondly, changes in inflation and interest rates may change your path to your financial goals. Thirdly, goal outlays may change due to factors entirely beyond your control. For example, your dollar cost of foreign education may go up substantially if the rupee depreciates vis-a-vis the dollar. Last, but not the least, certain requirements may come up in between which you had not anticipated initially. This also needs to be provided for while monitoring your financial plan…

Goals are fine, but goal posts may change…

This is a major risk in any goal setting exercise and why monitoring becomes so very critical. Why does a goal post change? There are quite a few reasons. You may be initially planning to send your child to an Asian University to study. However, due to an improvement in your financial situation, you may now be willing to send your child to study in the US or Europe, which will require a higher investment. This is a change in goal post. You may have planned a 2 bedroom apartment in a suburb originally, but now you may be planning a row house for more space. That again involves a higher outlay and revised goal post. Alternatively, you may have originally planned a small car after 2 years, which now stands modified to a sedan due to the new arrival in your family. Changes in goal posts are an important reason for continuous monitoring of your financial goals.

Changing macros; and nothing you can do about it…

You may have planned to grow your corpus up to a certain level through a debt mutual fund. Unfortunately, a cut in interest rates will mean lower yields and hence your long term goals may be at stake. That means you either need to allocate more money or alternatively you need to take a higher level of risk to reach your goal. Take the case of inflation. You may have calculated future cost of living based on your current inflation estimates. Due to higher spending by the government inflation may have stabilized 2% higher than your estimated levels. This again calls for lowering your investment growth estimates and compensating it through higher outlays or through higher risk. Macro factors like growth, inflation, interest rates are constantly subject to change and any secular changes can result in the need to urgently monitor and revamp your financial plan.

Goal monitoring due to X-factors at play…

X-factors are the interplay of local and global factors that you have little control over. For example you decide that for additional income to meet your goals you will take up a job in the Middle East. However, the low prices of oil lead to large scale downsizing in Middle East. This is something entirely beyond your control. You may have planned to send your child to study abroad and calculated your requirement assuming certain rupee/dollar parity. However, due to weak macro financials, the INR may have substantially weakened against the dollar and that may have substantially raised your funds requirement. Then there are cases where you were counting on your insurance and PF balances to be tax-free at the time of redemption. However, the government may have decided to shift to an EET model. This tax liability on your redemption will substantially alter your goal. That is why monitoring on a continuous basis becomes so important.

Unforeseen changes in the arena…

This is again a very important reason which calls for continuous monitoring of your portfolio. Let us consider a few instances. You may have planned your future requirements assuming that you need to plan only for one child. However, a new arrival may have suddenly given rise to the need to make additional allocation for the long term needs of your little arrival. Similarly, your parents may have gone through a crisis in their finances and they may now be entirely dependent on you. You need to now take care of their regular living and medical needs and that will also call for planning. In the modern world, divorces have become quite common and that also imposes a huge cost, both emotional and financial. That can also put paid to a lot of your long term financial plans.

Monitoring your goals is not a matter of choice but a matter of necessity. Remember, we live in a dynamic environment wherein situations can change quite drastically at short notice. The only way to hedge against these changing circumstances is to constantly monitor your goals under changed dynamics.

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