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What is goal-based investing?

By P V Subramanyam
April 13, 2015 09:00 IST
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Do you know the difference between the assets you own and liabilities you owe? Do you know your financial goals and how to achieve them in a time-based manner? 

If I were to write a book on personal finance, personal fitness, diet, I would love to call the book 'Take Charge'. Simply because that is exactly what you need to do with your health and/or your finances. Also only when you take stock of the current situation (i.e. make your balance sheet) will you know how much you have in assets and how much are your liabilities.

What is a balance sheet?

If this sounds like difficult terminology let us call it a statement of assets and liabilities!!


These are things that you own and for which there is a reasonable market value. If you have some old watches and pens that your great grandfather used, it is likely to have no commercial value. So all the mutual funds, life insurance policies, your bank balance, your demat account balance, house, car, white goods, etc. are all your assets. Do not forget your PF account, etc. too.

Once you add all this, the total that you arrive at is the TOTAL assets that you have.

Now if you have funded all these purchases OR some of the assets, the money owed on that is called your LIABILITY (LIABILITIES in plural).

What goes into the asset side is the current value of your mutual funds (if you do not have the market value, please obtain the statement from your mutual funds), the bank balance, the maturity value of the bank fixed deposits, the current value (approx) of the life (endowment) policies, the market value of the equity shares and an approximate value of your house given on rent (you ignore the house in which you are living -- that is an usage asset like your car).

THESE ARE THE working assets that you have -- the financial assets that is working for you.

Assets like home, car, golf kit, watch collection, etc. are your USAGE assets. These are not 'working' towards your goals.


We are talking about all your short term liabilities (unpaid credit card), personal loan, travel loan, car loan, home loan, etc. All these items go to the liabilities side. Now if you deduct your liabilities from your assets the figure that you get is called your NET WORTH.

Once you know your net-worth (balance sheet tells you where you are financially), you should then make your 'Goal Sheet' (where you want to go), then see how much you are earning and how much you are spending (Income & Expenditure account), then you make the 'Cash Flow' statement (how much of cash you received and how did you use it).

ONCE you have all the four documents (properly filled up) you will know:

a) your net worth

b) your income and expenditure

c) the journey -- the financial plan which tells you how to go from 'where you are' to a 'where you wish to be'

What you have done now is just taken charge of your financial life! So go and take charge!! This is your first step in goal-based investing!

Illustration: Uttam Ghosh/

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P V Subramanyam