How to Meet Your Financial Goals: Whether it's buying a home or car, paying for your children's education or marriage, or even planning for your retirement, investing can help you meet your financial goals and your long-term goals. To beat inflation:Investing your money also helps you beat inflation. If you choose not to invest and prefer to keep your money in a regular savings account, the purchasing power of your money may decrease over time due to inflation. Therefore, to protect the value of your money, it makes sense to invest in financial products that have the potential to generate returns above inflation. To Generate Significant Returns: Investment opportunities such as stocks or mutual funds have the potential to generate significantly higher returns than a savings account or bank fixed deposits.
If we use our saved money where it will grow, then that is an investment. However, there are a number of choices when we want to invest and it's not possible to make decisions without having a way of classifying things. Classify investments immediately. Before that, we have to classify our investment needs. Investments can be made for a variety of needs.You could save for emergency medical supplies that are usually needed immediately. Or you're saving for retirement decades away, or anything in between. We've created a useful framework for thinking about these investment needs by dividing them into four levels. Each level is more basic than the next.
You must satisfy the need at each level before moving on to the next.Those with a little knowledge of psychology can see that this system is based on the "hierarchy of needs," a concept proposed by psychologist Abraham Maslow. Maslow's hierarchy dealt with basic human needs such as food, shelter, etc. Beings attend to their higher needs after the simpler ones are satisfied. This is the hierarchy of investment needs: TIER 1 Basic Contingency Funds - This is money you may need to meet a personal emergency.It must be immediately available, partly as physical cash and partly as funds that can be immediately withdrawn from a bank.
Online banking and ATMs make this relatively easy to organize. TIER 2 Term Insurance – Calculate a realistic amount that would allow your loved ones to fund at least short- and medium-term life goals if you were struck by a debilitating injury or illness, or even faced an early death. You must have adequate term life insurance before thinking about savings.Almost everything should be done in minimal-risk ways. TIER 4 Savings for Predictable Long-Term Goals: Same as Tier 3 except planned spend is more than three to five years away. Money. You could think on many levels beyond that and really, the details count a lot less than the concept.
Depending on the circumstances, one of the levels may need to be changed.For example, you might have enough income-producing assets that insurance is relatively less important. However, this does not decide how much to invest in each need. You don't have emergency cash in a savings account, so don't buy term life insurance.
No comments:
Post a Comment