financial goals

Education. Marriage. Retirement.

by Vinaya HS on April 7, 2013

in Finance

Over the past year, I’ve tried to keep tabs on the financial goals that people generally seem to have (as claimed in case studies, interviews, money makeovers, etc. published in leading personal finance publications). So, here’s the trend that I see. Most people seem to have the following set of financial goals –

  • Daughter’s Education in A years

  • Daughter’s Marriage in B years

  • Son’s Education in C years

  • Son’s Marriage in D years

  • Retirement in Z years

The sums of money to be saved as the “Marriage Corpus” are indeed mind-blowing (I’ve always seen 7 and 8 figure sums here!). That’s a whole bunch of ERE-money if you ask me. And Z is usually far far greater than A/B/C/D.

Oh, and there’s also the occasional –

  • Foreign Trip in 5 to 7 years

What do you think?

PS: I’m not in this stage yet — so, I might come back here years later and claim that these are my financial goals too. :-)

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Goals First. Investments Next.

by Vinaya HS on May 28, 2012

in Finance

Here’s a question that I often receive –

Hi. I’ve recently started my career at a software firm. I earn Rs XX,000 per month. Being new to personal finance, I’m not aware of investment options for beginners. Could you please guide me towards suitable investment options?

Whenever I see such a question or an equivalent variant, my first thought is “Oops! Wrong way to approach one’s personal finances.” Investing is a worthy cause, but what are you investing for in the first place? Do you want to buy your first vehicle? Do you want to clear your education loan? Do you want to double your money overnight? Every investment that you make has to be driven by a “Why?”

It’d be very easy for me to blindly ask you to put your money in a balanced mutual fund or in a dividend yield fund or in the public provident fund. But without knowing that “why” you’d end up putting your money in the public provident fund when all you wanted to do was to save some money for a down payment on your bike.

So, sit down and identify your [financial] goals first (here’s a great starting point). Investments come much later.

And if you currently have no idea what you want to invest for, I’d recommend that you simply open a 1-month fixed deposit each month and keep renewing them till you figure the “why” out. By then, you’d have learned to save, to invest, to earn interest, and to make your money work for you.

Finally, I’m not sure if this problem is specific to the software industry — too much money too early in one’s career and no clue what to do with it all.

What do you think?

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2012 Money To Dos

by Vinaya HS on January 1, 2012

in Finance

After the lengthy treatise in 2011, thought I’d keep things simple in 2012. So, my primary money to dos for 2012 are:

  • Purchase an online term plan in my name by April 15, 2011 (to qualify for the income tax savings). However, I will complete and publish my research for your review and feedback by mid-February.

That’s about it. If I achieve these three (and especially the last two), I’ll be extremely happy. The routine stuff (stay out of debt, increase emergency fund, etc.) is still there, just that I don’t want to bore you all over again with the details. As I progress, I’ll also write in detail about these three since that’s what many of you have also been asking for.

I’d usually end by asking you about your goals, but I’ll hold-on to asking that in the January Book Giveaway coming up very very soon.

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I used to have a significant number of short-term goals (way more than what I recently listed here). For example, I used to have as my short-term goals:

  • Stay one-EMI ahead on my car loan i.e. save for next month’s EMI from this month’s salary.

  • Save for all of my annual expenses in the form of an Annual Expenses EMI (Note: Right now, I don’t include this component as part of my household expenses. Maybe it’s time I should. Definitely food for thought.)

  • Payback any expenses charged on my credit card within a week of incurring the expense. (I followed this diligently even during my recent trip to the US.)

  • Keep a small emergency fund in my wallet and in my car at all times. (I’ve lost track of the number of times I’ve fueled at a pump only to find that there’s no cash in my wallet. I don’t carry my credit card either. These mini-emergency funds have been a lifesaver.)

I used to look-up each of these goals several times over the course of a month. I had to constantly remind myself. But gradually, as the months progressed, these short-term goals became ingrained long-term financial habits. Now, I do each of these subconsciously.

For example, each month as soon as my salary is credited, I immediately divert the relevant amounts into expense items titled next-month household expenses, annual expenses EMI, credit-card repayments, etc. In other words, these once-upon-a-time short-term goals are now permanent line items in my personal finances tracker (specifically in the sheet representing my “Single Source of Financial Truth”). I can’t miss these, even accidentally, since they are right up there in my tracker.

And what does it take to get here: discipline and a willingness to change.

How about you? Have you been through a similar phase with your personal finances?

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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)

  • 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)

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!

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Approximately 70 to 30 — when most literature suggests the exact opposite.

But that’s what my financial goals demand and financial goals are how you ought to arrive at your own debt to equity investment ratio.

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Multiple Competing Personal Finance Goals

by Vinaya HS on May 6, 2010

in Finance

A asks,

Emergency fund. Soon to start household expenses. Soon to start loan repayments. Short-term savings for some expensive stuff. Long-term savings for old age. How do I manage it all every single month?

A’s situation is a classic example for multiple competing personal finance goals. A’s one of my closest friends and who’s about to enter an exciting phase of life — this change is perhaps the root cause for this sudden surge in financial goals. Here’s what I advised A to do.

Prioritize.

It’s overwhelming — and close to impossible — to try and do everything in one fell swoop. Focus on one or two goals and work on them to completion. Then attack the next one or two.

It’s also a good opportunity to introduce The Balanced Money Formula — your percentages will vary for sure, but this is a pretty disciplined method for financial success.

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Tip Tuesdays: How to Set a Financial Goal?

by Vinaya HS on March 30, 2010

in Finance

Here’s a real example for one of my financial goals.

Goal #1: Eliminate car loan debt

I want to eliminate my car loan debt by December 31, 2010.

Achieving this goal will make me debt-free!

To achieve this goal, I will:

a. Save 1 EMI payment (i.e. Rs X) and an additional amount of Rs Y each month from April, 2010 to November, 2010

b. Save Rs Z (outstanding principal + pre-clousre penalty – (8 x Y)) in December, 2010

Once the EMI has been deducted on December 01, 2010, I will pre-close the outstanding loan balance (Target: December 14, 2010).

It’s Specific, has a Justification, and details concrete Steps. In short, it’s Actionable.

What do you think? How do you set your financial goals?

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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