Mr. Joshi, a senior executive in his early 40s, lives in an upmarket apartment with his wife, a teacher, and their 12-year-old daughter Avani. His Facebook posts are a source of envy to his friends who see him taking exotic vacations and checking into new restaurants every weekend. Yet, he is vaguely stressed about maintaining his current lifestyle and planning for his major future financial goals. This is not Mr. Joshi’s story alone.
As a financial coach would say, Mr. Joshi is now in his peak earning years and it is in this phase that he has a great opportunity to create wealth for his future goals.
Mr. Joshi, like many others, has been making ad hoc investments to ensure he is saving. For him, investment is all about starting a SIP, asking his broker for the next big investment ‘tip’ – the upcoming IPO, that great stock tip or the ‘best’ insurance plan, or saving through PPF. As for his expenses, even though his earnings are high, his expenses (including EMIs, insurance premiums, and lifestyle and education expenses) are higher and there is practically nothing left every month. The question is - Is this approach going to help the Joshi family meet their future financial goals?
The truth is any decision you take about money impacts your overall finances. However, when we decide to invest in real estate or take a loan or buy stocks or mutual funds, we do it without considering the impact of one decision on the other and without considering how this impacts our future financial goals.
Like Mr. Joshi, most of us are unable to identify all our important financial goals and chart a simple, implementable plan to achieve these goals. However, if he were to begin the goal-based financial planning process now, let's see what a few probable goals would look like –
Setting financial goals is the most important part of the financial planning process. Even if what you can actually invest might be lower than the required investment, it's absolutely fine! Your earnings will increase every year and as long as you are disciplined with your investments and keep increasing your investments each year, your goals can be achieved.
Mr. Joshi's story is often reflected by many people. The 40s are a great time to give serious thought to this planning process as a lot of your financial requirements can be met if a proper goal-based financial plan is made and implemented.