Monday, August 11, 2008

Identify Your Financial Goals

In my last blog, I shared my motivation for spending time on ‘Smart Savings’. Once you are convinced that ‘Smart Savings’ is worth exploring, take the first step: define your Various Financial Goals. Let me explain this with some example.

Assume, you earn X amount and can save some Y amount, where both X and Y is variable. You can use Y to get an optimum corpus but key here is to know when you might need this money! Ok, no one can answer this for sure, because future is uncertain. So, comes the planning. No plan can be perfect. I mean my plan can never work for you, why? Simple, I have different financial background, different needs, different liabilities, and different age. So, always plan for yourself. Don’t copy from someone else’s plan, but only learn. Factors to consider while doing the planning are:
1) Your current age
2) Age when you want to retire
3) How much money you want to save and spend (and when)?
4) Current Liabilities

Converting it all into financial goals, know how can you divide the money in following categories:
1) Long Term – Corpus that is adding directly to my long term goals (eg. having 1 crore rupees at the end of 20 years).
2) Mid Term – Corpus that you can save now but may need 2 years from now, or 5 years from now. Idea of time period will help you in selecting the right investment tool.
3) Cash in Hand – Corpus that may be needed tomorrow. Basic principle that all experts (me anytime not an expert) suggest is; have 3 months of expenses available as cash.

Now fill your goals quantitatively, that is determine what’s your long term goal, what’s mid term goal and what’s short term goal. Various instruments that I am aware for these different types of investments are:

Long Term: ULIP, Gold, Pension Plan, PPF, ELSS, Mutual Funds, Real Estate.
Mid Term: Equity, Mutual Funds, Bank FDs, Stocks, Real Estate, Postal Savings Certificate.
Short Term: Savings Bank Account, FMPs, Money Multiplier Account, Bank Fixed Deposits.

There are many more investment tools which I keep on exploring as I get time, and latest I am learning is F&O.

For now, try to quantify your goals and see how much portion should go where and take advantage of principle of computing to achieve your wealth related goals.

1 comment:

  1. I used to think savings only meant Long Term, until a mentor told me how Cash in Hand was important too. I see that thinking about all three helps to keep things in perspective when making goals.