Have you ever think if there is no goal post then what will
happen to a football match? Similarly if we don’t have a financial goal than we
will be in some unknown situation. So it very important to set financial goals and plan your cash flow to
achieve them. Setting goals and sticking to them is the key to personal finance
success. Getting to where you want to be requires Vision , workable plan and
discipline to follow the plan. Goal should be realistic. It should not be a dream. Goal should be
actionable, we must have some tangible time line in order to reach there.
Let me give an example to explain how Goal and Planning
work. Suppose you want to buy a house. For this you need to make the down
payment. So first you need to decide the cost of home. After that how much do
you want to make dawn payment the time line for the same. Let us assume you
want to make a down-payment of Rs 25 lakhs in 5 years. So this is goal for you.
Now you need a plan to reach there.
For 20 lakhs in five year you need to save some amount every
month for sure. But the key question is how much money do you need to save, so
that you can meet your down-payment goal?
If you expect to get 10% p.a. return on investment, then you have to
save Rs.25614 every month. I have not taken effect of inflation. Now if you
don’t have these figure then how can you reach the corpus? Make sure that your
goals are achievable. It means if someone with salary 30000 per month then this
goal is not a realistic goal. In this case he need to change the plan and increase the time line or reduce the corpus
required or both.
Now you have the goal and the plan. Now you need to start to
execute the plan and stick to it. While execution you need track your goal on
regular interval. At any point of time if you feels that the plan is not going
according to the plan the we need to change the plan to achieve the goal. It
may happen that your investment is not giving
the expected 10% return or the cost of the house is going to increase
and you need some more corpus. In that case we need to rework our plan once
again. But if the plan is working as expected then please don’t touch. For better planning and tracing we should
split our timeline to smaller milestone with target. In this case we can review
our corpus in every 6 months if it in the line with our plan then go as per
plan.
As we have discussed the plan for create corpus we must have
plan for exit also. If you don’t have that then it may possible you missed the
finish line with a margin. As you reach near to your goal you need to shift
your corpus in safe asset class like liquid fund.
As we have discus a goal to make down payment we may have
multiple goals. Some of the most discussed goals are
Create an Emergency Fund : An Emergency Fund planning should
be our first goal. As an Emergency Fund we must have a corpus equivalent to 6
months expense. This must be kept in risk free and easily accessible asset
class as FD or liquid fund.
Get Out of Debt – Completely Or Partially : it is a very
important goal in everyone’s financial life. Most of us have one or two
loan/EMI. If we reduce the out flow towards the Debt repayment then it will
increase our allocation towards investment. This will help us to reach others
goal quickly.
Early Retirement : Retirement is a truth for everyone who
is working. So it is better to plan it
early. It the best if someone plan it on the day one of his working life. For
this you need to calculate the cost of living after retirement with inflation.
That corpus need more time to get ready. Most of us don’t like to think about
this.
Hope this will help…
