The 3 New Rules of Managing Your Money

The sheer number of financial goals and the ever growing size can be quite a challenge. Here’s a way to manage all – and sleep well

By Clifford Alvares

How to achieve so many financial goals? As individuals, our needs and wants are rising and so are our goals. Going by their sheer numbers like a car, house, retirement, consumer durables, medical expenses, a grand world tour, we simply have too many goals. But that’s not all, our goals are multiplying. For instance, some of us already own a house, but we now require a bigger house. On top of it, they are not getting any cheaper. We calculate our retirements on our present standard of living minus some. But what we don’t calculate is our future standard of living. To put it simply, we now live with one car, but we could have two cars tomorrow. We also don’t know how much our future living standard will go up by. So, we not only have goals, but our goals are also multiplying, and their costs are rising.

Map down your goals

We obviously are chasing too many goals. If we break up these goals in to retirement, marriage, etc, etc, they also become too much to handle. To get a better grip on the goals, it’s best to classify them to their tenures. So, if we have a goal like retirement and kids’ marriage, they are both long-term goals. These goals become easier to handle as one long-term milestone. Likewise, goals like a car or a down payment for a house can become short-term goals. You don’t need to have more than two types of goals that of short term, which covers a car and a housing down-payment, and a long-term one that covers your retirement.

Create milestones

The other advantage of clubbing your goals is that you can set a common target for your long-term goal. For example, say, you have two long-term goals of kids’ marriage in 20 years and your retirement in 30 years. So, your 30-year retirement plan can be broken down into milestones-- 10 & 20 years. You can also reduce your 20-year goal of kids’ marriage into this 10-year milestones. After this, you work backwards and find out the corpus you need to accumulate for both in 10 years' time. Similarly, your short-term goals can be broken down into 1 & 2 year targets. All of this can be made into one-year milestones.

Drive to your target

By breaking down goals into common targets, you can then go about setting up your portfolio to achieve all these milestones. For instance, you can merge all your long term goals into one common long term fund and withdraw only when you want to fund your goals. You can invest in ultra short funds if your requirements are immediate. For longer term goals, equity funds should form a bulk of your corpus. Every year or so, once you do your annual assessment you can see how you stand against your targets. If your goals have increased, you only add the additional funds required to your type of goals. If you are falling short in your corpus targets, you know that you will have to cut back, and increase your savings. If you manage your targets, you will find that the targets are easier to manage.