Mrinal Sinha is a bit of an oddball amongst his friends. A successful corporate lawyer whose peer group is into fancy addresses and latest cars, finds himself unwilling to bite into the debt culture. Instead his eyes are fixed on future financial goals. Sinha has already hit bulls-eye with his first target: a home of his own. “I was clear that my EMI will not be very high,” says Sinha. Instead, he patiently waited for some ancestral property to get sold, and then moved ahead with the home goal. Other goals include financial safety of his wife and son by taking adequate life insurance cover, retirement planning with pension products and more property to get a second source of income. Sinha is very clear why he saves. He saves to meet defined future financial goals. But that is not how most people work. Savings are usually a residual rather than a target. A basic question: why do you save money? For an emergency, for the kids’ future, for buying a home, for your retirement. You probably picked all. But do you know what each of these will cost and when you would want the money? Probably not. But you do know how much insurance premium you have to pay and how much tax-saving investments need to be done each year. That is because you are looking at a defined goal. Defining financial goals is the first step towards a secure financial future. There are some basic rules in the goal-setting exercise. Goals need to be: WrittenThe first step is to put pen to paper and list out your family’s goal set. Begin with writing out all the goals that come to mind. Now differentiate between goals and dreams. Knock out the ones that look too far out. Your goal set could include a home, a car, higher education for the kids in a preferred institute, their marriage and your own retirement. Make goals that suit your family. QuantifiedNext, put a price tag on the goals. The goals that most people make are hazy. “I want a good education for my child” or “I want a happy retirement”. However, unless you know how much each will cost, how will you work towards it? The next step is to put a price to your goals. Work out what each goal costs in current rupees. This is a starting point to what it will cost in the future. Time framedEach goal must be put on the ladder of time. You need to know how far away the goal is because this influences the financial instruments to be used. You can use higher risk products like equity and property for goals that are more than five years away. For closer goals you can look at debt or money market products. This also has an impact on the real cost of the goal, as inflation will make the goal cost more. So you have to inflation-adjust your goal to see the final figure that you target. PrioritisedA family of four could have goals that pull in different directions. Goals need to be divided into the absolutely essential, the desired and aspirational. Allocate more resources to the essentials and put them higher on the priority list. For example, if there are limited resources, the family may have to choose between the higher education goal and that of a luxury vacation every two years. ActionableBigger goals look intimidating. A goal of Rs 15 lakh for a child’s higher education in ten years may look frightening. But breaking it down to an annual and then monthly figure makes the goal achievable. This goal, at a return rate of a very conservative 8 per cent will mean a monthly target of Rs 8,500 a month. Not easy, but do-able. ReviewedGoals need to be reviewed at least once a year. The underlying interest rates, market conditions or inflation may change. The goal may get upgraded or downgraded or may change direction totally. A child who wanted to go abroad to study may find jobs at home that do away with the need for an expensive education. Do this exercise. Set some goals, follow them through and see what a difference it makes in your feeling of security about your and your family’s financial future. Remember, no match was won without shooting into a goal. Goals that work My own house In three years I want my own home on a 250 sq yard plot in Gurgaon that costs Rs 45 lakh today A fantastic car In two years I want a green coloured Qualis that costs Rs 7 lakh today A great home theatre system Next year I want a Home Theatre System that costs Rs 25,000 today A dream vacation Every three years I want a vacation in a different country. Such a vacation costs between Rs 3 lakh to Rs 10 lakh today A good education for my kids I want to send my son in ten years to study Marine Engineering in Australia. Such a course costs Rs 7 lakh today A decent marriage for my kids If my child was getting married today, I would spend Rs 5 lakh A comfortable retirement I want to retire in 15 years with a monthly income of Rs 25,000 in today’s rupees
