The first step in financial planning is setting your goals. In fact, the goals serve as the base to any financial plan. Hence one must be extremely careful in setting his/her goals, because it's only when the foundation is strong, the building stands undaunted to the test of time. Hence you must have definite goals which are free from errors.

The subsequent paragraphs will throw light on how you should go about setting your goals, the points you should keep in mind in order to avoid mistakes.

Difference between a Goal and a Financial Goal: The first thing that you must know before goal setting is, understanding the difference between a goal and a financial goal. A goal when quantified in terms of value as well as number of years, becomes a financial goal. Say for instance, you want your daughter to do her masters from Harvards. This is your goal. But when you say, 15 years from now, you need Rs 1 Crore to let your daughter do her masters from Harvards, this is your financial goal. Here, you must be careful in estimating the future cost of the goal, since you need to take into account an appropriate inflation rate. It is advisable that you seek help from a financial advisor for the goal setting process, so that you don't under or over invest for the goal.

Your goals are interdependent: Your goals are separate but not solitary, each goal exercises some impact on another. And putting all your goals together on one excel sheet or a diary, will give you a broad view and will help you prioritize. You may not start investing for all the goals with immediate effect, but at least you have all of them on your to-do list, so that you can take them up gradually. For instance, your near term goal of paying off your credit card outstanding may push your vacation goal from next year to a year ahead. So, after your credit card debt, you can start saving for the vacation.

Not just other goals, your goals are also dependent upon various financial and personal factors like income, expenses, savings, budget, assets, liabilities, number of dependents, etc. For instance, if currently your income is low due to a market slump, and expenses are high as usual, your goal for buying an expensive sedan in two years time may not be realistic. So, either you have to modify the goal to a mediocre hatchback or maybe push the goal horizon from 2 to 5 years. So, your other goals and your personal and financial factors put together will determine your goal realization and will also help you set the horizon.

Goal Horizon and Investment: The horizon of your goal largely determines the investments you choose. There are other factors playing a role too, like your age, income, risk appetite, risk tolerance, etc., but the inverse relation between horizon and risk associated with the investment plays as the thumb rule. For near term goals, it is not apt to invest in risky products, as it may hamper your goal achievement. For long term goals, you can venture into riskier options, with a greater return potential, since you have the leverage of time in hand.

Link your Goals: Once you have set your goals, link your investments to these goals. Goal linking is crucial because it gives you a clear picture of the needs and the gaps, and the investment product you should choose keeping in mind the amount required and the horizon of the goal. Each of your goals must be linked to a fitting investment, your financial advisor will help you in selecting the right product for each goal, which is capable of producing the required amount when the goal arrives.

Review: Like life, relationships, job, health, and a lot of other things, goals are also not static. A lot of factors can result in a change in your goal, your incomes or expense commitments, your preferences may change over time, some goals may no longer remain applicable beyond a point, and some new goals may take over, etc. Also, your long term term goals will eventually become short term goals and you must take the necessary steps to provide for the transition. For Example, your retirement goal which was 15 years away 12 years earlier, is only 3 years hence, so you need to shift your investments into less riskier options to avoid the impact of short term volatility. So, the bottomline is, goals are dynamic and investments must be restructured & realigned to the goals from time to time.

So, the above were few key points which the investors must be mindful of while setting their financial goals.

To conclude, define your goals prudently, and let your goals keep you going!

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We are carefree when we have a regular income coming in which is enough to provide for a quality of life that we wish to live. While living in the present attitude is perfect for living a peaceful and positive life, but it helps only until the times are good, when the good times take a U-turn, it hits real hard. Therefore, it makes a lot of sense to be prepared for the worst. According to Warren Buffet, “If you don't find a way to make money while you sleep, you will work until you die.”

This passage focuses on the need to create a source of secondary income, also known as Passive Income, and also highlights the products which you can invest in for generating an extra monthly income for yourself.

Need to Create Passive Income

Emergencies: We generally face financial difficulties in times like Job Loss, Medical or Family Emergencies, Reduction in income due to change in government policies, cyclical fluctuations, etc. Many of us have our Emergency Funds prepared for such untoward situations. But the no or low income period may stretch beyond the Emergency Fund. If you have a source of passive income, it can take care of your survival until you are engrossed with the emergency.

Financial Freedom: Having a source of fixed passive income imparts mental peace and Financial Freedom. Financial Freedom is a state when your expenses are taken care of irrespective of whether you are bringing any new money in the house or not. It's like come what may, no income low income, you will still have money for your daily bread, your kids will still go to school, your normal life will not be interrupted for lack of money. Being financially free let's you live peacefully and positively in real sense and not just a live in the moment attitude.

Post-Retirement: You may or may not need your passive income over your life, you may be lucky and not face any major financial hiccup, but after retirement, passive income becomes a must. You need money:

> To provide for your routine expenses. Regular income is over now.

> To provide for increased healthcare needs. Although, many of us might have insurance covers, the insurance policies will cover treatment for diseases and hospitalization. But the actual medical costs are much higher during old age. There are routine check-ups, medicines, physiotherapy sessions, tests, etc., which are mostly not covered by insurance and are expensive, an MRI alone costs anywhere between 6 -10K. Your passive income will be your best friend after your retirement.

Accelerate your income: Further it's not just about emergencies or extreme situations, having extra money is always nice. It's helps in advancing your standard of living, and lets you spend on stuff which you otherwise might have sacrificed.

How to Create Passive Income

Basically, you need to squeeze more money from your money. You create a portfolio of assets which are capable of generating income for you. It's like a chain, your money works to earn more money for you.

And the concept is not new. One of the primary reasons behind investing in India is generating a source of passive monthly income. We have traditionally been investing in Real Estate, with a view to get a regular rental income, or in Fixed Deposits/Post Office Monthly income schemes, with interest payout options. The interest payout becomes the source of monthly income in this case. But these conventional options have their own set of flaws. In Real Estate, there are hassles like maintenance charges, you may not find a tenant immediately after one leaves so there can be gaps in rental income, rental yields are also low. In case of Fixed Deposits, the interest rates are very low in the range of 6-7%, and that too taxable, so the monthly income will also be low.

There are monthly income options offered by Mutual Funds, like the Dividend Payout option of Mutual Funds and SWP option in balanced funds. These methods are more convenient and than the traditional options, investing is completely hassle free. And the return prospects in Mutual Funds are higher, the last 5 and 10 year returns from the average of balanced Mutual Fund schemes are 15.55% and 11.27% (As on June 30, 2018; Average of 17 schemes). So, even if your SWP is 8% of the principal amount, the extra return gives your investment a chance to grow after you meet your monthly income needs. You can seek help from your financial advisor for guidance on which scheme you should invest in and how much you should invest for your monthly income requirements.

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There is an investor who has four saving accounts, Rs. 10,000 lying in one, Rs 15,000 in another, Rs 2,000 in the third one (the investor has paid penalty for not maintaining the minimum balance here), and Rs 65,000 in the last one. This guy had invested Rs 50,000 in a bank FD in 2012, another Rs 20,000 in 2014 and Rs 30,000 in 2017. He is heavily invested into property, apart from the house he lives in, he has two flats and few hectares of land in the outskirts of the city. Further, he has taken a traditional endowment policy for which he pays a premium of Rs 75,000 a year, and has a family medical cover worth Rs 1 Lac. The investor's goals aren't drafted and he is absolutely clueless about how his goals will be met.

There is so much clutter in this investor's finances, that if,

• This man needs Rs 15 lacs for his son's higher education after few years, even though he has properties worth crores of rupees, he may or may not be able to have the money in the hour of need, because of the super illiquid characteristic of real estate.
• The health insurance may not be sufficient, considering the ever rising medical expenses.
• In case of an emergency, he will have to accumulate cash from four different saving accounts.
• He has a majority of his portfolio concentrated in real estate, so there is lack of diversification.
• In case of his sudden demise, his family would also not know, where the investor has invested, forget the family, even the investor during his lifetime won't remember where all he has invested.

And this is the situation of many investors in India. This situation arises because we invest a random amount in random investment products without any investment horizon in mind. And what happens as a result of this approach is when need arises, in spite of having numerous investments, we are not able to accumulate enough money to meet the need.

The solution to this is, not investing more, rather organizing the investment protocol, having a holistic approach towards investments and financial planning.

So, what is Holistic Financial Planning?

Holistic financial planning means incorporating all aspects of personal finance like age, income, expenses, savings, financial goals, tax, insurance needs, commitments, liabilities, etc., and preparing a blueprint for achieving your goals taking into consideration all of these aspects.

Just like, carbohydrates, protein, calcium, vitamins, iron, all these elements put together make a complete diet, if any one of the above is missing, it can cause a deficiency in your body and can make you sick.

Similarly, ignoring any of the elements of personal finance, may leave the investor crippled in times of need or when a goal arrives. Holistic financial planning is a 360 degree approach to investment planning. It states that all the elements of personal finance must work together to achieve all the financial goals of an investor over his lifetime.

So, how do you do your holistic financial planning?

Each investor has a set of unique needs and preferences, therefore there is no universal financial plan which is the right fit for all investors.

Further, it's not just about about having a comprehensive approach and integrating all the elements of personal finance, these elements are interdependent. One investment can be of dual use, like you can invest for saving tax as well as the same investment can be mapped to a long term goal like buying a home. The portfolio needs to be optimally diversified. You must prepare yourself for emergencies, protect yourself and your family with adequate insurance, and you must identify and exploit the opportunities as they come.

It's ideal that you seek professional help. Sit with your financial advisor, spend time with him and share your complete financial standing, the assets and investments you own, what you owe, life goals, needs, priorities, etc., for your holistic financial planning.

Your financial advisor will aid you in designing a financial plan which takes care of all aspects of your life and goals. He/She will keep your emotions under check, so that you don't fall for impulse and take investment decisions triggered by market movements.

Once your holistic financial plan is prepared, there is a need review it from time to time with your advisor, to incorporate any change in your income, expenses, goals, priorities, or any asset allocation changes that may have happened in the portfolio due to markets movements.

To conclude, a holistic financial plan works by looking at the bigger picture, it takes into account every facet of your life. It ensures that all your financial goals and emergencies will be met by properly planning for them. So, sit with your financial advisor and prepare your holistic financial plan.