Are you investing without having goals?

I developed a habbit of saving since the year I start my Job. However, i used to simply created fixed deposits or recurring deposits with whatever I felt like I won't need during that month.

That approach worked well for me to some extent as I was at-least saving, however today when I look back I would not advice that approach to any young earner. I call it dangling investments.

I say this as now I beleive in the following principal 

"If you don't know where you want to go then any road can take you there"

This simply means if you are putting money into some investment avenues and you don't know what are you gonna use it for the following is going wrong 

• You don't know when you will need that money - short term, medium term or long term. And hence you might have made a choice of investment that is possibly not giving you right returns for the time it would have been invested. Putting money in FDs for say over 5 years is a financial sin you must not commit unless you have really strong reasons to do so.
• You don't know whether you are over investing or under investing - you may be saving some 25k everymonth. Now, how would you know if that would be enough to meet your future needs in case of emergencies or your live events. Unless you know what you are investing for and the time horizon, your quantum could be completely wrong. 
• You don't know how much you can pull out from investments - Suppose you have been saving and have 50 lakhs in your investments. Now, you feel need of buying that awesome car, and you pull out 20 lakhs from your investments. Is it what you should be doing? No, right this one unknown bucket investments has money for your retirement, your kids education, buying a house and buying the car should be least of your priority against most these goals

Hence, its always prudent to decide your goals (the detination) and the time horizon when you want to reach there. This clarity will even help in your day to day decisions that you take, you will always we clear whether you have enough to splurge on your daily whims and desires. 

And once you have your goals figured out, you need to definitely put down a plan that you should be reviewing every few months to have a pulse check. A plan is very important as a goal without a real plan is just another dream. I hope i made my point. 

How to reach your Retirement Goal

You have understood your Networth and your cashflow statement by now, and you have also gone to the future date and really understood how much money that you would possibly want when you retire. [if not, read earlier blogs]

• What's your Networth
• What's your cashflow statement
• Fast Forward to your retirement

Now, that you are done with where you stand and where you want to go, let's figure out what do you need to do to reach your destination in time and with right quantum on money.

In simple terms your retirement corpus is the Future Value of your Investments today, which typically are: PPF, EPF, Properties, Land Holdings, Fixed Deposits, Mutual Funds, Equity Holdings, Graturity, Annuity, NPS savings etc.

Let's say you had invested in PPF, and you have it for self, your spouse and kid. And here are the holdings

Similarly, you have Mutual Fund Investments - In the form of emergency liquid funds, your current equity holdings and your planned SIPs. Say they value as follows

And you do have say two properties as well, which value something like below. I am assuming really a low rate of return on properties of around 3-4%. Also, i am assuming you stay with your family in one and have lent out the other one which gives you a rental income  of say 30k per month as on today (grows 5% per year)

And say you both work and your EPF lumpsums today and future earnings on EPF would be increasing 5% per year. 

With all these you would end up having a retirement corpus of 8.8 Cr (but observe that you have also taken immovable assets like properties in to account, which needs to be liquidated if you need their woth to be in banks and withdrawable for usage)

I am repeating, but i am never tired of stating this "Always make conservative estimates for the benefits and generous estimates of your liabilities"