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How to determine goal value in financial planning

Goal value in financial planning

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The goal value that is relevant to a financial plan is not the current cost of the goal but the

amount of money required for the goal at the time when it has to be met. The current

cost of the goal has to be converted to the value in future. There are various option tips provider in India that sell reliable recommendations and help in portfolio management.

The amount of money required is a function of

  • Current value of the goal or expense

  • Time period after which the goal will be achieved

  • Rate of inflation at which the cost of the expense is expected to go up

The current cost of a college admission may be Rs. two lakhs. But after 5 years, the cost

would typically be higher. This increase in the cost of goods and services is called inflation.

While saving for a goal, therefore, it is important to estimate the future value of the goal

because that is the amount that has to be accumulated.

The future value of a goal = Current Value x (1+ Rate of Inflation) ^ (Years to Goal)

In the above example, if the rate at which the cost increases is taken at 10% then the cost

of the college admission after 5 years would be:

Rs.200000 x (1+10%) ^ 5= Rs.322102.

This is the value of the goal which needs to be achieved by saving and investment. For

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