Investing is like an insurance, we have to own it when we don’t need it but it could be late to be bought when we would need it. So it is wise to start investing as soon as possible, but before we go further on all investing related matter, it is also good to know what goal we want to be achieved with our investment. Goal is what we called as financial target.

Financial target should clearly define major information on our financial purpose, those we need to know from our financial target are: when exactly we would like to achieve it ?  how much going to be our maximal budget to be invested on this target ? and most important is what would be the value that cost us in future ? Why it’s important to get these question to be answered ? because based on those information we can analyze and decide which investment instrument would be suitable most. By understanding how long our investment period would be, we can define level of instrument liquidity and both information of our budget and future value will show us whether we should take moderate or aggressive level of return rate which eventually relate with risk level (more aggressive would give more return but risk level also higher).

Lets have an example. I would like to prepare college fund for my daughter for next 12 years from now and my budget for this is only $150/month, based on my research currently it would cost US$50K, so for next 12 years with assumption education cost increment 15%/yr, it would be $268K. Okay, that’s large amount of money, especially for citizen of developing country like me With only $1800/yr I need to find an investment instrument that could give me 45% return/year, and saving this on conventional saving instrument is not the answer. So, after having discussion with my friend and research on internet and some financial institution I found an instrument who claim to give 35% on average and proven have good track record. Indeed, it was not as per my expectation and I have to allocate more than my budget, but at least it reduce risk on unable to achieve my financial target when my daughter would enroll for her college.

So, now you see why defining financial target is important ?

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