My Future or My Child’s Future

Pretty easy to answer.  Right??? For most of us our child’s future is more important than anything else. In a country like India where most of the decisions are based on emotions we tend to save only for our children. Well, nothing wrong in it but when it comes to financial planning lets try to look at it from a different perspective.

When we start saving (saving because most of don’t invest, we save please read Investment v/s saving) the first agenda or goal is emergency, be it medical or financial. The next goal is our kids education, then their marriage and then, last but not the least, a lot of short term goals like buying a car, down payment of house, buying jewellery, etc. We all forget the most important part which is, retirement planning. In today’s world when you have opportunities across the globe kids don’t restrict themselves to their home town when it comes to education or job. Further, we have seen a major cultural shift in terms of people moving from joint families to nuclear families. Most of us have also shifted from our home town in search of job or a better life, yet our parents have not shifted because of their own reasons. It’s just a matter of time when our kids will also move out of town or home to live their own life and so it becomes extremely important that we plan for our retirement today.

How many of us are aware of organisations which can fund retirement??? However, any bank shall willingly provide an education loan. So instead of saving money to fund the entire education of your child you should plan to save for your retirement. Save enough money to fund their basic education and for higher education they can apply for a bank loan and pay them off when the start earning.

Such an arrangement will have 2 benefits- one, the kids will learn to save from day one of their work life and two, it will give you space to save for your retirement.

It’s good to be emotional but it wiser to be practical when it comes to financial planning.

Retirement Planning

How will you react if someone tells you that your monthly expenditure at retirement will be Rs. 4.1 lakhs per month….   You may say “ Kuch bhi bolta hai” or something on similar lines.

Well, that’s the same way our parents would have reacted if we had told them 30 years back that with Rs. 50,000 per month, they will be able to meet just your monthly expenses. Today, for someone living in a metro,  Rs. 50,000 will be the bare minimum expenditure.

We all have heard stories from our grandparents as to how Rs.100 was more than enough for their monthly expenses. So, why has all this changed?? How come our expenses have grown from Rs.100 per month to Rs.50,000 per month?  This is because of 2 factors – change in lifestyle and “ Mehangai” or inflation as we call it. We talk of it day in and day out but how many of us know that on an average inflation has increased at 7% per annum. Well, that’s not going to decrease going forward either. With such an increasing inflation rate, if your current monthly expenses are Rs. 50,000 per month, then they will  be nothing less than Rs. 4 lakhs per month at the time of your retirement.

Well if this surprised you, you will be even more surprised to know that you can create sufficient corpus for your retirement by investing  Rs. 6000 per month.

For more on retirement planning, stay tuned!!!

(The above calculation is for a 30 year old person with a monthly expense of s. 50,000, and who expects to retire at the age of 60. The amount will be different for each one of us but the motive in explaining this is to understand the importance of retirement planning. )

Invest with purpose

One of the most important things when we invest is to be clear about the purpose of such investment. Most of us invest without a goal in mind, which many a times, results in early exit of the investment. We invest for our future but then exit that investment to fulfill short term needs for example, vacation expenditure, vehicle purchase, etc.

Have you ever left your home without deciding where to go?? I am sure the answer is “no”. Let’s try and implement the same strategy to our investment. Whenever you invest, whether in a bank FD, mutual fund, or SIP, try and assign a goal to it. This will not only keep you away from exiting that investment but will also ensure that you have invested enough to meet that goal.

For example, if you have a kid who is 10 years old and you know that you will need at least Rs.10 lakhs( present value) for his higher education, considering 7% inflation, your actual requirement after 10 years will be approximately Rs. 27 lakhs. This amount definitely looks huge today, but can be easily achieved by doing a SIP of Rs.4500 per month (assuming 15% returns p.a).

Now when you do your next SIP (investment), attach this SIP to your kid’s education. There are 2 benefits of doing this. First, you will not withdraw this money to buy a new mobile phone or to go for a holiday and secondly this will help you in keeping a track of how much more you need for your kids education. Say after 5 years the value of SIP is Rs.4 lakhs, you know now that you will need Rs. 23 lakhs more in next 10 years to ensure that your kid’s education is not affected.

Use this funda for your new as well as existing investments and see the magic!

Investments are like Kids

Treat your investments like your kids –  Don’t have more than what you can manage.

One of the most important things you teach your kids is discipline. Same is true for your investments also. Your kids grow slowly, similarly, let your investments also grow slowly, don’t try to yield all the returns in one single day. Do you teach entire syllabus in one day?? No. Then, why invest everything on one day. Schools teach kids in a step by step and disciplined manner. Apply the same logic to your investments also. You will be amazed to see how your investments grow.

How many of us measure our kids height and weight on a daily basis?? I am sure none of us do. But when it comes to investing in direct equity / mutual funds we track them on a daily basis. Funny isn’t it ?? Well, nothing wrong in tracking but you should insulate yourself from taking hasty decisions of exiting investments because it didn’t perform well for 3 months or 6 months.

Treat your investments like your kids. Nurture them, pamper them, give them time to grow and perform, take corrective actions when necessary, be disciplined.

Believe me; this child will not disappoint you.

Hello world!

We all are busy in our own little world and tend to forget few important things in life. Investments is one of them. So if you are someone who postpones your investments for tomorrow,this blog might help you in understanding  the cost of delaying your investment.

We all know that money is important, but how much, is the big question. Sorry, but I can’t tell you how much money is important for you, but can share my views on how much is necessary. After spending a lot of time in financial services I can just share my view and experiences of investing.

Hope this helps you in converting your savings into investments.

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