If you always thought that your exotic vacation was your periodic splurging time, you could be mistaken. With a little bit of planning and a little bit of financial allocation, you can make vacations pay substantially for them. However, how do you decide how much needs to be allocated and how to make your vacation self-paying?
A small tweak to fund your vacation…
You had promised your wife and children an exotic Bali vacation 3 years back, but you ran short of money. Don’t blame your circumstances because you could have planned it better. Let us put this in the form of a chart to understand this better:
In the above table, we are assuming that as per your financial plan you are currently doing an SIP of Rs 22,000 over a long period to meet your long-term needs. Obviously, this is your core wealth creation engine and you cannot afford to mess with these funds. But you still want to promise your family an exotic Bali vacation after 3 years and actually stick to it. How do you achieve it?
There are two ways to do it. Firstly, increase your allocation to the same MF SIP by about Rs 3,000 per month. Now, obviously an additional investment of Rs 3,000 per month will really not hurt your finances too much. What matters is the outcome. If you assume that your fund continues to earn 15% annualized return, then your additional monthly of Rs 3,000 will translate into Rs 1.37 lakh at the end of 3 years. If you feel that the amount is still insufficient, then you can take a slightly higher risk for a period of 3 years where the additional Rs 3000 per month can yield you nearly Rs 2 lakh at the end of 3 years if you adopt a slightly more aggressive approach to funds. That should surely be sufficient to treat your family to a Bali holiday, or at least substantially sufficient. And you are achieving all this with just an additional outlay of Rs 3,000 per month. Now you must surely be regretting not thinking about this 3 years back!
How can I do this vacation simulation with minimal effort?
That is a logical question and you can get answers to your question by working backwards. Suppose that your vacation to Bali costs Rs 2 lakh for a family of 3 today. You can assume that it will cost around Rs 2.50 lakh at the end of 3 years. If you plan early and book tickets and hotels online, you can complete your entire trip within this budget and also leave a tidy sum for your wife and daughter to indulge in some shopping. Now how do you get to this figure of Rs 2.50 lakh?
Imagine that your platform already has all the details of your risk profile, your return requirement, your tax status, your liquidity matrix, your monthly SIP, your wealth status etc. All you need to do is to input the funds requirement and your online financial plan will automatically tell you how much additionally you need to save and at what rate over the next 3 years.
That brings us to the next question of getting an actionable game plan. What are the funds available in the market, which of them suit your risk profile, where can you afford to take the risk and how much additional risk can you afford; all these can be easily captured and executed by the online advisory platform. So you have solutions about how much extra you need to invest in which funds and how to tweak your risk for higher returns. Now, all this may appear to be quite simple but it actually calls for big time application of artificial intelligence and machine learning as the data size you are talking about is huge. Only a high-end machine with sophisticated algorithms in the back-end can give you quick solutions.
What about execution of the transaction? That is something the platform can manage perfectly well. Once your additional SIP amount is decided and the scheme is identified based on your return requirement, the actual transaction can be executed at the click of a button.
You are finally on vacation and have shut out all access to your portfolio…
Again, that is not the case. Being on a vacation need not mean that you have taken a holiday from your financial plan. When you travel to any corner of the world, you can still be in touch with your financial plan, make changes to it, rebalance it if required and also execute the transactions. So you are still monitoring your investments sitting in Bali because everything resides on your smart phone at the click of a button. Effectively, even when you are on vacation you are fully connected and able to access and transact the Indian markets through the platform.
That surely sounds like a strange vacation, right? Your investment platform helped you to plan your vacation, your investment platform helped you to actually create a SIP for your vacation and it also ensured that the liquidity was made available to you at the right time. Even when you are on vacation, your entire investments are available to you at the press of a button. That surely makes your life a lot simpler. That is when your vacation actually becomes a paying vacation or a Paycation as we like to call it!
(By Gagan Singla, CMO, Angel Broking)