Financial planning
Working backwards from the number you need
Most people invest a monthly amount and hope it proves sufficient. Goal-based investing reverses the order: establish what the goal will cost on the day you need it, then solve for the instalment.
A father told us he was investing ₹15,000 a month for his daughter’s engineering degree, twelve years away. A sensible amount, invested consistently. But nobody had asked what the degree would cost in 2038, so nobody knew whether ₹15,000 was ample or half of what was needed. It turned out to be roughly half.
That is the gap goal-based investing closes. It starts at the end and works backwards.
Step one: price the goal in future rupees
A degree that costs ₹20 lakh today does not cost ₹20 lakh in twelve years. At 8% education inflation it costs about ₹50 lakh. Planning against the current price is the most common and most expensive mistake in the sequence.
| Today’s cost | Years away | At 6% | At 8% | At 10% |
|---|---|---|---|---|
| ₹20 lakh | 10 | ₹35.8 L | ₹43.2 L | ₹51.9 L |
| ₹20 lakh | 15 | ₹47.9 L | ₹63.4 L | ₹83.5 L |
| ₹50 lakh | 20 | ₹1.60 Cr | ₹2.33 Cr | ₹3.36 Cr |
Step two: solve for the instalment
Once the target is in future rupees, the monthly figure follows from the horizon and an assumed rate of return. For a ₹50 lakh target at an assumed 12% per annum:
| Horizon | Monthly SIP required | Total invested |
|---|---|---|
| 10 years | ₹21,700 | ₹26.0 lakh |
| 15 years | ₹9,970 | ₹17.9 lakh |
| 20 years | ₹5,000 | ₹12.0 lakh |
The same target needs four times the monthly amount at ten years that it needs at twenty. Nothing in the plan is as powerful as starting earlier, which is the point the delay cost calculator makes in a more uncomfortable way.
Step three: match the asset class to the horizon
This is where plans usually go wrong, in both directions. Equity for a two-year goal exposes money you will certainly need to a market you cannot predict. A fixed deposit for a twenty-year goal guarantees you will fall short of inflation.
- Under 3 years — debt schemes or deposits. Certainty matters more than return.
- 3 to 5 years — a conservative mix. Some growth, limited volatility.
- 5 to 7 years — a balanced allocation, reviewed as the date approaches.
- Over 7 years — equity-oriented, with a plan to shift out gradually near the end.
The exit is part of the plan
A twelve-year education goal should not still be fully in equity in month 140. Moving to debt over the final two or three years protects the corpus from having to be sold in a bad quarter. Set that shift as a calendar item when you start, not as a decision to make later under pressure.
Keeping goals separate
A single pot holding three goals looks efficient and behaves badly. When the first goal arrives you redeem from the pot, and the remaining goals lose funding without anyone deciding that they should. Separate folios make the trade-off explicit: if you take money from the retirement allocation to fund a car, you see it happen.
Reviewing
Once a year. Check three things: has the goal’s cost estimate changed, is the instalment still on track, and is the horizon short enough now to warrant reducing risk. Scheme performance is the least important of the four and the one investors spend the most time on.
The goal planner does the inflation and instalment arithmetic for you — enter today’s cost, the years remaining and an inflation assumption, and it returns the monthly figure. Treat the output as arithmetic on assumptions you have chosen; actual returns are not guaranteed.
Common questions
What is goal-based investing?
Tying each investment to a specific purpose, amount and date — a child’s education in 2041, a house deposit in 2030 — and choosing the asset class and instalment from that, rather than investing a general surplus and seeing what accumulates.
What inflation rate should I assume?
General inflation of 6% is a reasonable base. Education and healthcare costs have historically risen faster, so 8 to 10% is more realistic for those. Assume a higher rate if you would rather be over-prepared than short.
Can one investment serve two goals?
It can, but it is a poor idea. When the first goal arrives you redeem, and the second goal quietly loses its funding. Separate folios or separate schemes per goal make the position visible.
What if I cannot afford the required instalment?
Then one of four things has to change: the amount, the date, the monthly figure, or the assumed return. Adjusting the return assumption upwards is the tempting option and the only one that is not real.
How often should a goal plan be reviewed?
Once a year, and whenever income or the goal itself changes materially. The review is mostly about whether the instalment still matches the target, not about changing schemes.
Which asset class suits which horizon?
Broadly: under three years, debt or deposits; three to five years, a conservative hybrid mix; beyond seven years, equity-oriented. The horizon determines the asset class, not the other way round.
Work through your own numbers