Most of the life goals are common to individuals -owning a house, a car, child’s education and marriage and retirement planning. However, individuals have their own income streams and needs and desires to be fulfilled and it pays to think through the issues.
After knowing one’s net worth and budget, one should divide goals into short, medium and long terms and choose financial instruments accordingly. “After keeping funds for contingency, one should prioritise to meet the long-term goal and then the short-term goal,” said Vishal Dhawan, a financial planner. Short-term goals such as a vacation or a car purchase can be deferred.
The right instruments give you “the benefit of compounding and empowers you with the ability to suffer setbacks,” said Dhawan. “For retirement planning one should get on with equity investments but for a short- term goal the money should never be allocated to equity,” said Jaideep Lunial, a Chandigarh-based financial planner.
For example, if there is money needed for a wedding at home in the next six months, the way to go is safe debt instruments, not equity. It also pays to know the amount needed for long term goals such as a child’s higher education. “Accordingly you should allocate your fund so that it helps you reach the goal,” said Dhawan.
Rajeev plans to retire 20 years from now at the age of 55 and if his household expenditure is Rs 15,000 now, the amount he would need post retirement to meet his household expenditure at an inflation of 5 per cent would be Rs 39,800. In order to maintain his lifestyle after retirement, he should be able go generate an annuity of Rs. 40,000 a month 20 years hence and target an amount accordingly. A youngster with a higher risk appetite should go for higher equity investments, while someone in his or her 40s or 50s should focus on debt instruments.
© HT Media