Mahesh Sharma, 40, earning Rs 38,000 a month and his wife Neelam Lata, 34, earning Rs 10,000 a month are planning to buy a house, send their children (daughter, 13, and son, 11) abroad for higher studies. They also plan to retire at 60.
While he has all such plans, he has no idea how he is going to attain them. “Things just happened such as marriage, my father’s demise four years ago which led to my getting assistance from relatives to start my own business from scratch,” said Sharma.
“More than 80 per cent of Indians delay setting their financial goals,” said Ranjeet S Mudholkar, principal advisor, Financial Planning Standards Board, India. “People think about planning only when they face a situation or if a problem is likely to impact them immediately.”Financial goals are really life’s goals — from funding vacations abroad and buying a golf set to buying a car and funding retirement. Instead of hunting for finances in panic when the financial goal hits you, it’s always better to plan ahead.
Goals also need to be realistic. For instance, planning to buy a $200 million (Rs 1,000 crore) yacht on a Rs 6 lakh per annum household income would be a dream, not a goal. But deploying that money such that you can maintain your lifestyle 30 years later, when you won’t have a job, is a financial goal.
How does a household make realistic financial goal?
First, it needs to see where it stands in terms of needs. Is it a single-income household or double — the latter reduces risk and increases surpluses. How many dependents are there — young children, elderly parents. And after removing day-to-day expenses, how much surplus is left.
Second, determine life’s needs — the children need to be educated, a house needs to be bought and retirement needs to be funded. If there’s some left over, financing a large flat screen TV, an SUV, a world trip would need financing.
Third, each financial goal has to be given a number --- Rs 50 lakh for a house, Rs 1 crore for sending your daughter to Harvard, Rs 5 crore to fund the retirement and so on.
Finally, map the surplus that the household generates with the financial goals. Does it seem possible or is it like the yacht? If the latter, get back to the drawing board and rework your goals.