80% of salaried Indians run out of their salary before month end! 30% salaried Indians do not or cannot invest; on the other hand India now has 8 lakh millionaires and 166 billionaires!
Everyone knows that your bank account doesn’t go with you when you die yet the Pursuit of money is the common struggle of the modern era because it is extremely difficult to have a good life and enjoy the little pleasures of life without having money and a sense of security.
Having long-term financial goals is important for anyone looking to build wealth and security over the long term. However, simply setting financial goals is not enough – you also need to make sure that your investments are aligned with those goals.
First things first, it’s important to actually have long-term goals. Are you saving for retirement? Do you want to buy a house in the next few years? Or maybe you have your sights set on a Euro Trip. Whatever your goals may be, it’s important to be specific and have a clear plan in place.
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Once you have your goals in mind, it’s time to take a good hard look at your current investment portfolio. Are your investments actually helping you achieve your long-term goals, or are they just there because they seemed like a good idea at the time? It’s okay to make changes to your portfolio as your goals evolve, so don’t be afraid to sell off investments that aren’t aligning with your long-term plans.
Now for the fun part: finding investments that actually align with your goals. If you’re saving for retirement, for example, you’ll want to focus on investments that offer long-term growth potential. This might include stocks, mutual funds, and even real estate. If you’re trying to save for a down payment on a house, you might consider investments with a shorter time horizon, such as liquid & debt funds, T-Bills or even short term fixed deposits.
Keep these 4 things in mind-
1. Set clear, specific goals: Be as specific as possible about what you want to accomplish and when you want to accomplish it.
2. Understand your risk tolerance– If you have a long time horizon and are willing to take on more risk, you may be able to afford to invest in higher-risk assets like stocks, which have the potential for higher returns but also come with more volatility.
3. Diversify your portfolio: By spreading your investments across a variety of asset classes and individual securities, you can reduce your overall risk and increase the chances that your portfolio will perform well over the long term.
4. Regularly review and rebalance your portfolio: It’s important to regularly review your portfolio to make sure that it is still aligned with your financial goals and risk tolerance
Now the most important part- Here are some actionable hacks, habits and rules that you MUST follow-
1. Automate your investments– Most people find it very difficult to automate investments and run out of their salary before month end. One habit that I have since the last 6 years is automating investments- 20% of my monthly earnings directly go to 4 Index Funds at the start of every month. It is completely automated. As they say, out of sight, out of mind.
2. 1% Savings Rule- Now, people find it very difficult to increase the money they save as they grow older; I have a very actionable hack for this- every quarter, I make a 1% increase in my savings%, that means 4% extra every year. 1% extra saved every quarter doesn’t feel like a lot, but in the long run it has a drastic effect- So if you start at 20% of your monthly income saved at age 23 and keep increasing it every quarter, by the time you are 30- 35 years old, your savings % will be approximately 55% and you can keep it constant after that.
3. How much money do I need to retire? I want to retire before I am 30!!- I have heard this statement at least hundreds of times. What most people want is not to retire but to have financial freedom and be able to do what they want. So do you know that you now have enough money to not work for money any more? The thumb rule is- Save 25x-30x of your expected annual expenses at the time of retirement. Let us say your expected annual expenses are Rs 30 lacs at the time of retirement, you need to have at least 7.5-9 crore saved and invested to achieve true ﬁnancial independence.
4. Lifestyle Inflation- As soon as people get promoted they upgrade their lifestyle in the same proportion or even higher than that immediately post the raise. But a financially prudent person should always Save at least 50% of their future raises & bonuses; in other words DO NOT increase your lifestyle expenses at the same rate of your hike. This is called lifestyle inﬂation and Keep your lifestyle inﬂation minimum. If your house rent is 30k per month, and your salary gets doubled tomorrow – do not make the cardinal mistake of moving into a house with 60K+/ month rent
5. Passive Income & Side Hustles– If your long term plan is to to make money work for you so that you don’t have to work- focus on building side hustles & passive income streams that generate cash every month to cover your expenses. Have a home loan EMI of 20K, try to build a passive income stream for 20k, that way you don’t have to worry about these expenses if you decide to stop working or change career directions.
6. Cash is King– People do not understand the importance of having cash or liquid funds in their portfolio, and most people sell their stocks and mutual funds during stock market crashes or major declines. But Market crashes are buying opportunities. Look at the history, in the last 100 years, the market has fallen by 10% or more in around 53 years. That means every 2 years the market falls by 10% or more. Out of these 53 declines, 15 declines were such where the market fell by 25% or more. That means every 6 years, the market falls by 25% or more. Yet overall the stock market has grown like crazy in the last 100 years! this is all you need to know. So have 15% of your money parked in liquid funds or FDs so that you don’t miss investing opportunities like 2008, 2020 and so on. 90% of the stocks that I bought during 2020 have atleast doubled in value!
And do not invest in the stock market if you need that money in the next 5-7 years.
One final tip: don’t get too caught up in the daily ups and downs of the stock market. It’s natural to want to check in on your investments frequently, but try to focus on the long-term and remember that your investments are just one part of your overall financial plan.
So there you have it: a few simple steps to align your investments with your long-term goals. With a little bit of planning and some careful consideration, you can take control of your financial future and feel confident that your investments are working for you.
Just follow these simple steps and you’ll be well on your way to ﬁnancial success. Or, you know, you could just put all your money in a giant pile and set it on ﬁre – that might work too. Just kidding. Happy investing!
(By Kunwar Raj, Founder, Unfinance)