How My Biggest Financial Mistake in 2010 is Affecting My Personal Finance Goals in 2011

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You already know that I’ve made an extremely stupid mistake due to which I’m now looking at an income tax liability in the upper five figures! This means I’ll simply be unable to meet all of my financial goals over the next three months (because I really won’t have much to call as a salary). Since I know that I can’t meet all my goals, I’ll need to prioritize as to which ones I need to continue through this tough period and which ones I can postpone.

But, before all that, let’s see what my current set of goals are.

Short-term goals (for me these are less than a year away)

• Increase my emergency fund to cover eight months’ worth of living expenses. Contribute Rs X each month into my emergency fund. Period: January, 2011 through December, 2011.

• Contribute Rs Y each month into my Swift-repair fund. Period: October, 2010 through March, 2011. (In the past, I’ve often raided this fund to meet Travel-related expenses. An excellent reason as to why you should have a Recurring Deposit for such goals.)

• Contribute Rs Z into my Travel and Living fund each month.

Medium-term goals (for me these are between one year and three years away)

• Contribute Rs M each month into my Swift-replacement fund. Period: April, 2010 through March, 2013. (I do a SIP into a Conservative Allocation Mutual Fund for this purpose.)

Long-term goals (for me these are more than three years away)

• Contribute between Rs A and Rs B each month into my Financial Independence portfolio. (I’ve almost finalized the structure of this portfolio — I’ll write about it in the coming weeks.)

Goals listed, here’s my thinking.

If I add up my monthly contributions into the Swift-repair fund, the Swift-replacement fund, and the Travel and Living Fund, their sum is more or less equal to the additional income tax that I’d be paying each month up to March. Since these goals aren’t that critical and can be stopped/postponed, I will stop/postpone them. What a lucky coincidence!

PS: I know that I’ve said that Travel is my #1 goal — but I guess paying income tax takes precedence!

For the next three months, I will, however, continue to contribute into my emergency fund and into my Financial Independence portfolio since these are critical goals and can’t be compromised upon.

All this just because I made one stupid mistake!

Tagged as: financial goals, income tax, recurring deposits, thoughts

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