Recently, we had the delight of seeing Cristiano Ronaldo score a hat-trick on one of the world’s greatest stages — the FIFA World Cup. The tournament gives us the chance to witness some of the greatest sportspersons in their prime gunning for the biggest prize of their lives. All their lives, they have dreamed and trained for this moment when they could lead their nations to sporting glory. These fine young men striving towards their lives biggest goal helps us remember that we too have life goals. The smart management of money is absolutely essential to the achievement of those goals. Let’s take a look at how you too can work towards fulfilling your dreams.
The first step towards achieving a life goal is to decide what the goal is. You don’t want to be living someone else’s dream; you want to live your own. Therefore, sit down and reflect on what you’d like to do in life. While setting goals, you need to answer some basic questions — what the goal is, by when it is to be achieved, and what it's going to cost. Breaking down the goal in smaller parts will help you work towards it gradually.
KEEP TRACK OF PROGRESS
Once you start investing towards a goal, take stock of your progress periodically. See how your investment plan is working for you. If it’s working as per expectations, you don't need to change anything. If the plan is not working, see what changes need to be made. For example, you may need to identify an instrument more suited to the goal. Once in a while when you receive a bonus or seasonal income, divert a portion of it to your goal so you can accelerate your progress. When in doubt, consult a financial advisor.
GIVE YOURSELF THE MAXIMUM TIME
Money goals require time. The greater the time available, the easier it may be to achieve it. Let’s say your target is to save Rs 5 crore for retirement. You are 30 today and plan to retire at 60. A target as big as Rs 5 crore may seem out of touch with your reality today. How can you create this corpus? By breaking it down into smaller, monthly contributions. If you invest Rs 15,000 a month in a mutual fund with an annual returns expectation of 12 per cent, you’ll get Rs 5.3 crore in 30 years. You can also make it simpler: start investing Rs 6,000 per month in the same plan, and increase this monthly contribution by 10 per cent every year (Rs 6,600 from the second year, Rs 7,250 from the third, and so on), and you’ll reach the same corpus of Rs 5.3 crore in 30 years.
THINK OF INFLATION
Inflation reduces the value of money over time. In the last 30 years, the average inflation rate has been around 6.5-7 per cent per year. Inflation may matter less to your money goals in the short term. However, in the long term, its effects may be severe. Let’s assume that the average inflation rate will be continue to be 7% over the next 30 years. Therefore, you need to invest in a manner that you are comfortably able to beat inflation — that is by earning a post-tax rate of return higher than 7 per cent.
#PICK THE RIGHT INSTRUMENTS
To beat inflation and earn the optimum returns required to achieve your goal, you must pick an investment instrument best suited for your goal. For example, if you want to save up for a two-wheeler purchase in one year, use a fixed or recurring deposit which will provide seven per cent returns. If you want to save for a home purchase five years down the line, try a balanced fund that may provide 9-10 per cent returns. If you want to save for retirement, try equity MFs that may provide 10-12 per cent returns in the long term. If you pick the wrong instrument for any goal, you may expose yourself to several risks such as not achieving your goal due to low returns, or having to take undue risks in the short-term.