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| One hundred small steps |
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Rattan Chugh
ExpressMoney
A big-ticket financial goal seems distant when you look at it in its finality. Break that journey into small steps, and the walk home doesn’t seem that long.
I regularly conduct sessions on financial planning under the title ‘fulfilling dreams in a fixed income’ for various companies. Basically, it works like this. I make a presentation to the employees assembled on how the realisation of financial goals is more a matter of discipline and planning in how you save and how you invest. After that, I throw the floor open for questions.
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Their questions…
From the inquisitions, nervous and searching, two things strike me. One, people don’t open up easily about money matters, partly because they don’t know the vocabulary and partly because they feel inadequate. Two, despite earning enough to support their current well-off lifestyle, self-doubt is a common theme running in the expression of these people. When they express their aspirations and share their preparedness for it, there’s an undercurrent of resignation and apprehension.
Some want to pursue higher studies (especially in BPOs). Some want to buy a house. Some want to take a sabbatical and see the world. Some want to turn entrepreneur. These are all pursuits that require a substantial sum of money, but they feel they “don’t have enough” and they live in the hope that “some day” things will be different.
My endeavour is to convert this hope into action, pull them out of the cynicism and make them feel empowered to take charge of their money lives. It’s a process that demands some introspection, some calculation and a plan. I confront them by asking them how important their “dream” is to them. Says Saurabh, who works in a BPO: “If I don’t do an MBA, I will regret it all my life,” only to add, “but I can’t afford it in my current income.”
As I see it, the options before Saurabh are to make an appearance on the next instalment of KBC or be the benefactor of a generous inheritance, or he could start chipping away on his own. Working towards a goal is the most empowering and probable option. And really, unless your
goals are lofty beyond reason or your capacity to earn is near the basement, everything is in the realm of the possible
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Invest Rs 5,000 a month, get Rs 1.6 crore after 20 years |
| Return on Investment(%) |
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10% |
15% |
20% |
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| IF YOU INVEST RS 5,000 A MONTH |
| 5 Years |
4.0 Lakh |
4.5 Lakh |
5.2 Lakh |
| 10 Years |
10.4 Lakh |
14.0 Lakh |
19.2 Lakh |
| 15 Years |
20.9 Lakh |
33.9 Lakh |
56.8 Lakh |
| 20 Years |
38.3 Lakh |
75.8 Lakh |
1.6 Crore |
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| IF YOU INCREASE IT BY 10% A YEAR |
| 5 Years |
4.8 Lakh |
5.4 Lakh |
6.2 Lakh |
| 10 Years |
15.4 Lakh |
19.9 Lakh |
26.3 Lakh |
| 15 Years |
37.4 Lakh |
55.7 Lakh |
86.6 Lakh |
| 20 Years |
80.7 Lakh |
1.4 Crore |
2.6 Crore |
| Compounded annualised |
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| .…and my answers |
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Let’s take the example of three of the many people I came across during my interactions. Their goals were different, but the road they had to walk on was the same. To start with, they had to break their big, unachievable goal into small, achievable targets. Then, they had to save the earmarked amount and invest it. Regularly. Without fail.
The regular savers. Kulpreet wants to buy a house worth Rs 60 lakh after six years. Given that she has only about Rs 2 lakh as savings, it seems like a very distant goal. She talked to a bank about a home loan and the house seemed closer, but not much. The bank has told her that she needs to bring in 20 per cent of the amount (Rs 12 lakh), it will loan the rest. Assuming that property prices increase by 7 per cent a year, the cost of the house will increase to Rs 90 lakh and her down payment to Rs 18 lakh. It gets further again.
I ask her two questions. One, can she save Rs 16,500 a month for the next six years? Never an organised saver, Kulpreet ponders for a while, and concedes she could forcibly. Two, can she earn an annualised return of 12 per cent a year on it? Since she’s not clued into investments much, I answer for her, in the affirmative. I tell her that if she saves 16,500 every month for the next six years and earns an annualised return of 12 per cent, she will be ready with her Rs 18 lakh down payment. A lump sum of Rs 18 lakh was daunting to Kulpreet, but Rs 16,500 a month looks manageable to her.
Ritu, 33, always wanted to travel the world, but now with family responsibilities and the sheer cost of such an excursion, she feels it’s criminal to think about it. If she were to make the trip today, she thinks, she will need Rs 4 lakh. I suggest to her, push it ahead by four years, start setting aside Rs 8,000 a month for the next four years, and she’ll be on her way.
The disciplined investor. At 22, Sanjay is just starting out, but he doesn’t want to get caught in the cat race. He wants to retire by 40 and feels that Rs 1 crore should see him through. The problem, he says, is that he earns only Rs 20,000 a month presently. I introduce him to systematic investing and the power of compounding. I advice him to start a systematic investment plan (SIP) in equity funds, putting Rs 5,000 every month. If Sanjay’s money earns a return of 20 per cent compounding annually, which is certainly possible, his corpus will swell to Rs 1 crore in 18 years. Better still, if he increases his monthly investment by a modest 10 per cent every year, in line with the probable increase in his salary, he will reach the Rs 1 crore mark in 16 years.
There’s a common lesson from the three stories. Rather than be overwhelmed by a large amount that is required to fulfil a dream, a small amount set aside on a regular basis unburdens you and frees you to do other things.
The simple exercise of planning provides clarity and empowers you to take charge of your dreams. Remember, a journey of thousand miles starts with a single step, and each step in the journey is as important as the last step, which takes you home.
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| A down payment of Rs 18 lakh after six years is daunting, but saving Rs 16,500 a month is easy |
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