How to invest less and achieve your financial goals?
As we have discussed before goal-based investing makes it more likely for you to reach your financial goals. Writing and tracking financial goals actually fuels the commitment required to achieve them.
In this post, we discuss how unified goal planning helps you achieve your goals by investing less today. Unified goal planning takes all your financial goals and calculates one SIP amount you need to invest by optimizing across all goals. The combined SIP in a unified goal approach is less than the sum of the individual SIP required to achieve the goals separately.
To reiterate, a financial goal has three components –
- Purpose eg daughter’s college education
- Amount eg Rs30 lakhs
- Time eg in 12 years
As a first step, it helps to list out all your goals.
Let’s look at an example
A 27 years old with a current monthly expense of Rs 45k is planning for the following goals:
- New Car in 5 years (~16 lakh corpus)
- Daughter’s college in 14 years (~25 lakh corpus)
- Son’s college in 17 years (~29.5 lakh corpus)
- Retirement in 33 years (retirement corpus of ~2.7 Crores to maintain his current lifestyle)
Your set of goals will be specific to you, so treat the above as an illustration. Part of a good goal planning system is to calculate how much you need to invest today. These calculators, popularly called SIP calculators, tell you the amount needed to be invested each month to achieve your financial goals.
Here is what our goal calculators show as SIP for the above goals –
| Financial Goal | Corpus | In Years | Monthly SIP |
| Car | 15.8 Lakhs | 5 | 20,000 |
| Daughter’s Education | 25.3 Lakhs | 14 | 6,200 |
| Son’s Education | 29.5 Lakhs | 17 | 4,800 |
| Retirement | 2.7 Cr | 33 | 5,800 |
| 36,800 |
So if you plan for all the goals separately, you need to start investing Rs36,800 today.
If you used a unified goal planning approach, the SIP required would be much lower. Rs 26,600 per month in this case. With a unified portfolio approach, you start with a SIP amount that is 28% lower and still have the same set of goals.
How does this really work?
Let’s simplify and see the math behind this. Say, you have two goals –
Goal1 – requires a SIP of 5k for 5 years
Goal2 – requires a SIP of 10k for 10 years
A simple advice would be investing Rs15k for 5 years and then Rs10k from year 5 to 10.
Notice this –
- Your SIP amount is not constant for 10 years
- You are being asked to invest more now and less later. Your income, on the other hand, is likely to increase over time. Regardless if you can invest Rs15k today you can invest Rs15k five years from now, so you shouldn’t be asked to decrease your SIP amount.
In unified goal planning, we say how can we better this? Using a unified goal planner we calculate that you can invest Rs12k every month for 10 years to achieve both the goals. So start smaller today and never change your SIP amount. Isn’t that more intuitive?
This article was initially published by CNBCTV18 in the Personal Finance section.
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