Dreams make your life meaningful, and goals help you live your dreams. Converting your dreams into goals and then working towards your wealth goals is what can help you build your dream life.
Here are five goals you must set your eyes on and ensure your financial freedom this Independence day:
1. Home Purchase
A home purchase is one of the four necessities in life. If you haven’t decided yet on this dream, it’s time to start running your mind in this direction. Here are the questions you will need to answer for this goal:
- Location: Where should you own the house?
- Budget: How much should you spend to buy the house?
- Finance: Should you take a home loan or save to buy?
Typically, your house purchase budget should remain between 3-4 times your annual income. For example, if your annual income after deductions is Rs 10 lakhs, you can aim for a house worth Rs 30 to 40 lakhs. Your home purchase fund requirements will look something like this:
|Minimum Down Payment||400,000|
|Registration & Brokerage||440,000|
|Loan expenses (only for Down Payment)||18,000|
|Total Money Needed for the down payment||858,000|
|Total Money Needed for full payment||44,40,000|
|Overhead Expenses (interior work and furnishing)||500,000|
|Total Cost of Home Purchase with Full Payment||49,90,000|
|Total Cost of Home Purchase with Down Payment||14,08,000|
After you have the answers to the questions above, the next decision is about time. Your time to purchase the house will have a huge impact on your savings and wealth. For instance, if you aim to purchase a house within the next 5 years, a home loan is a necessary addition.
But if you extend the timeline a little more, you may finance the whole purchase without a loan. Here’s what your home purchase scenario looks like:
|Time to Buy||Investment ROI||Investment Needed P.M.|
|Only Down Payment||Full House Purchase|
Now you can easily decide whether to buy a home in 5 years or 15. ROI considerations for the calculations are rather generous. So, you can consider a more conservative investment strategy and save a higher amount for any timeline.
‘Retirement is an important goal,’ and this is an understatement. Retirement is one of the essentials of your financial plan. One day, whether you want it or not, the income from employment will have to stop. By this time, you must have built a substantial retirement corpus to support your regular expenses.
This goal is so important, that often saving for this goal starts even before you can plan for anything else. But still, knowing your retirement needs, planning and revisiting your investments is a better way to prepare for it.
Here’s how you can go about it:
- Estimate your monthly income need post-retirement
- Estimate any leftover financial goals which you may need to meet after retirement
- Calculate the corpus you will need by the age of 60-65 to support these financial needs. You can do so by simply dividing the annual financial need by a rate of interest.For example, if you need Rs 50,000 p.m. after retirement, and the expected ROI is 6%. Your corpus need is going to be Rs 1 crore (6 lakhs / 6%).
- Estimate your monthly saving need for building such corpus by 60. You can use an online calculator for whichever investment plan you want to use for the goal.
For example, ULIP calculator, NPS calculator, PPF calculator, etc. can easily estimate the amount you should save every month.
If these steps sound too complicated to follow, you can simply remember the following rule of thumb. They have been established based on Indian investment scenarios and simplify your savings targets:
|Considering the retirement age as 60 years|
|Starting age for retirement investment||% of income to be saved|
|30||10 - 15%|
|35||18 - 20%|
|40||30 - 35%|
|45||50 - 55%|
|50||80 - 90%|
These estimates are based on income replacement theory. This means that if you are earning Rs 1 lakh and want to continue the same income at retirement, you can save up to 15% of this income if you have 30 years to build the corpus.
To summarise, your retirement goal is less about reaching a size of the corpus, but more about saving a % of your income.
3. 360o Contingency Goal
Preparing for contingency is perhaps not as big a deal as saving for a house purchase and retirement. It also doesn’t require as much cash allocation. However, it can break or help your financial plan survive a catastrophe.
Here are the assets you must ensure in your portfolio to ensure a 360o financial protection from unforeseen events:
- Build and maintain a contingency fund equal to 3-6 months of your income
- Have a term life insurance cover of at least 10 times your annual income
- Have a critical illness cover of about 50% of your term insurance cover
- Ensure a Mediclaim insurance for family members of Rs 3 to 5 lakhs each
- Add personal accident and disability covers to your term insurance
Term insurance plans like iSelect Smart360 Term Plan from Canara HSBC Life Insurance, allow you to consolidate your life, critical and accidental cover needs. This has added benefits of continuing other covers if any added insurance strikes a claim.
4. Saving in a Flexible Long-Term Investment
You have multiple long-term goals you will need to fund throughout life. Investing in one or more flexible plans with the following features will be helpful in the long run:
- Allows partial withdrawals
- Allows diversified investments
- Offers tax savings on withdrawals and maturity value
Such plans will help you create a single fund pool for the following goals
- Child’s higher education
- Child’s Marriage
- Car Upgrade
- Home renovation and interior improvements
Investment plans like Invest 4G ULIP from Canara HSBC Life Insurance are a perfect way to meet multiple goals with a single investment. All these goals are long-term and will fall at different times in life. So, a single flexible plan can continue to fund them all.
Plus the following additional benefits make ULIPs perfect for such investment:
- Invest in a mix of equity and debt funds
- Tax-free partial withdrawals after five years
- Bonus additions for long-term investors
- Additional life cover and option to protect maturity value
Since these goals are also important for your family and they will need to manage even after your demise, the life cover of ULIPs becomes an important benefit.
Guarantee Your Child’s Future
You can safeguard your children’s goals with an even safer investment. Plans like iSelect Guaranteed Future offer guaranteed maturity value with bonuses for long-term investments. With this plan you can be sure of the following:
- You will achieve your targeted funds when you need them completely tax-free
- Your family will achieve the promised maturity value even after your death before the maturity
This way, your child’s future remains safe from financial hardships even if you are not there to watch over them.
Learn more about iSelect Guaranteed Future.
5. Vacation Goal
How can a celebration of independence be complete without a vacation? Do plan for a family vacation a few years down the line to relax and catch up with everyone in one place. Idea is to place the vacation at such a time when everyone can join in without stressing about their education, profession or other stuff.
With locations around the world and countries opening up to receive tourists it’s easy to decide on a location and start planning with a budget in mind.
Financial freedom is an important factor in a healthy life. After all, it's money which makes everything possible nowadays. So, whatever your goals and passion, start planning your finances and investing in them today.Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.