In the last blog we told you about the smart decisions you need to take to meet your financial goals even if you don’t have clarity of your specific goals. In this blog we look at a situation that is very common- you have a financial plan but you don’t have enough monthly savings to fund all the goals, the entire plan? This is most likely to happen if you didn’t start investing in your twenties and are late to the party.
Here are some smart things you can do:
While setting your goals you will realize not all goals are equally important. For example getting an expensive car may not be as important as giving your child a good education (hopefully). Similarly, saving for retirement is not negotiable. Even if you have great responsible and loving children you don’t want to burden them with something you can avoid by simple retirement planning.
A good way of funding the shortfall in reaching your financial goal is to prioritize your goals. The following questions will help you prioritize:
- Which goals can you drop because they are not as attractive as you thought once you see it along with other goals and the money they require?
- Which goals can be postponed? Eg. buying a house can be postponed. Cars can be at a lower expense and/or postponed; think uber/ola! This reduces the monthly investment required.
- Which goals can’t be avoided or postponed but can be done at a lower expense for the sake of other more important goals. Eg. Marriage expenses are really quite flexible when you put your mind of it.
In the MoneyWorks4me Financial Planning Tool you see all goals together in one place and hence you can make the changes based on the above and see the impact.
If your Financial Plan includes providing for 100% financing for all your goals, this is another smart decision you can make – take the right loans! Goals such as buying a car, house and children higher education can be funded by loans, at acceptable interest rates. In some, you will also get to enjoy tax benefits.
Plan for financing only the down payment required on each of these goals. As a result, your required monthly savings will reduce drastically. You won’t have to postpone your goals and at the same time save for other important goals.
Increase savings gradually
If you are still coming up short for funds, you can start saving as much as you can at present. However, make sure to aggressively increase your savings every year to make up for the initial shortfall.
Living like fully without spending a lot of money is not difficult but may require changing your mind on a few things. Cook great food at home rather than dining out regularly. Don’t act on every impulse to buy things, sleep on it a few days and then decide. Plan for a holiday in advance, book tickets and hotels in advance, enjoy good comfort but don’t go for 5 star because your friends stay there and what will you tell them (probably they are waiting to switch too)! You don’t have to cut everything out entirely, but by making a few sensible choices, you can save significant money every single month.
Your circumstances will keep changing as time goes by and so will your financial plan. As you achieve some goals you will have new one to look forward to. You may drop some, amend some and add others. It is important that your financial plan keeps up with your situation.
Involve your significant-others
Involving your spouse, family and other significant people in the planning and reviewing process helps in two ways. You get clarity of goals, their priority and ideas on how to get a bigger bang for your buck. You also get their commitment and buy-in into the plan making it possible to make the tough choices without feeling guilty or angry.
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