Ever wondered you had enough money to live the life your way and achieve all your financial goals?
What if we told you that living the life you always wanted is possible for just Rs. 18,000 a month. In fact, it is possible to lead an even better life. Wonder what that will be like?
It’s simple, even after doing everything you wanted to do you have some money left in your pocket.
Is it easy to achieve? Let’s find out.
What Are Your Financial Goals?
There are many goals in life. For the convenience and clarity, here we will only talk about those goals where money is an important component. In other words – Financial Goals. These financial goals will always be of the following three types (buckets remain the same, though goals in each bucket may change):
Needs are your household and living expenses. You need not plan or invest to meet these needs, but you need to earn or have a financial support in place to meet all your needs. The monthly household budget could be one need,
Goals are the Needs which will fall sometime in future. They are important, but not immediate. Thus, you have time to save for these needs.
Aspirations are those goals which are not important to live a good life, but they will make you feel better none the less. Also, sometime in the future, so you can invest in these goals.
Needless to say, ‘Needs’ get the priority over the other two types of goals, and goals are second in the chain.
Which Financial Goals You Can Achieve?
Leaving aside the aspirations for now, since first, we need you to meet all the necessary milestones of life. There are few financial goals or rather responsibilities, you must look after before you think of higher things in life. These will be:
- Buying a car
- Buying a house
- Providing for Children’s Higher Education
- Arranging for their Marriage Celebrations
- Building your retirement fund
- And in between somewhere if time allows, go out on a memorable family vacation
So how close does Rs. 18,000 a month, get you to these goals?
As estimated in the figure above.
- The down payment goal for a car can be easily achieved within first five years
- Within next five years, you can prepare to buy a house property
- In the next five years, you accumulate a lot more money and you can choose to spend it your way
- Then as the life progresses, kids will be nearing their higher education time
- Move further five years and you are preparing for their marriage
- Post that only important goal remains is retirement and a corpus of Rs. 2 crores should be good enough to see you through the next 25 to 30 years
Effect of the Assumptions
There are few very clear assumptions here. For example, you are buying the car on a loan for which you will end up paying EMIs for next three to five years.
Same with the house purchase except the EMIs will continue for the next 15 to 20 years.
But there are counter assumptions as well. For example, these calculations do not consider the growth of your income over the years.
But the most important assumption that makes these goals possible to achieve with as small an amount as Rs. 3000 per month is this:
“You start investing for all the goals from day one.”
Thus, it is not like that you can start investing in other goals only once you have completed one. You need to start investing in as many goals as possible.
Benefits of Investing in All the Goals
We know that these goals fall at different places in time. Some goals are very close to the present in the timeline, but others like retirement could be so far away that they do not even seem important for now. But there is one very important advantage hidden in planning for all the goals now…
“The early you plan and start investing the more time your money has for the growth, and apparently nothing grows the money as much as time can.”
Just imagine your retirement goal for example, after a certain age, which is usually around 60 years your investments must generate enough income for you to replace your monthly income, or at least the household expenses, and continue to do so for the next 25 to 30 years. Once again, you must also consider inflation.
The retirement corpus you need 30 years from now (assuming you are about 30 years of age), will not be Rs. 1 crore or 2 crores it must be about Rs. 5 crores to be sustainable.
Considering all these factors can you afford to start planning for your retirement 5 or 10 years from now? Perhaps not. In fact now is the right time to start, if you have not.
Higher Return for Longer Investments
Another thing you may notice in the figure of estimates is that the rate of return assumed for each goal increases with time. This is because of another important assumption…
“The longer you can stay invested the higher risk you can assume on the investment. Thus, leading to higher return expectations.”
Thus, a goal which is 20 to 30 years away from now can have higher equity allocation in the beginning years. In the last few years this allocation will gradually shift to safer investments. However, this type of allocation may sound complicated to manage this leads to better returns.
Even if you do not want to bother much about managing the investment, retirement funds like NPS (National Pension Scheme) will do the switch for you automatically.