When I started writing this blog, I asked my gruhini friends “So what would you like to read in a personal finance blog?” “I want to know the best investment option today?” said one. Another friend asked “where should I invest when economy is doing bad?” Yet another one who works from home asked about investments which give maximum tax benefits. You can bet on this, if they had 10 seconds to talk to Warren Buffet, the World’s richest and the legendary investor, they would have bombarded him with same query.
I thought hard. But I couldn’t sum up a list of investments that will work for a friend who is an entrepreneur, for a friend who is a senior marketing manager in the radio industry and a friend who does research work from home. The friend who works from home has a 11 month old daughter; the entrepreneur and the other friend are moms to boys aged six. Our tax status is different and I know for sure that our aspirations are diverse. So how can our choice of investments be same?
No, it can’t be same. Where your friend puts her money can’t decide what you are going to do with yours. It can’t be guided by what Gyani Gruhini says, nor can it be guided by the year-end or anniversary issues of magazines that run specials like “best investments for 2013” A tax friendliness of an investment opportunity cant be the only reason too.
Our investments ought to depend on our end use of the money or our financial goals. What would you like your money to do for you? Is it to fund your child’s dreams of becoming an aerospace engineer or your daughter’s destination wedding or to live a retirement life on an island in Maldives?
How many years down the line will you need that money?
Ever thought on these lines? Probably not as we spend more time in the mall for the much hyped festival sales than trying to know more about what a particular investment opportunity offers. Or some of us just see how much tax will be saved in it.
Fellow Gruhinis, it’s time we take charge of our family goals and align them with our existing or future investments. If you are not the one in charge of family finances, sit down and list it in your diary or save it in your reminder app on the phone. The next time the husband takes stock of family finances, do this little exercise of aligning your goals and investments. He will be impressed with your skills!!!
Here is how Gyani Gruhini does this exercise for her family finances.
A. Set your goals today
First thing I would do is to list down my goals along with the time frame.
Goal 1: Vajra’s education, 16 years from now
Goal 2: A holiday in South Africa’s Jungles or Kerala’s backwaters, 8 months from now
Goal 3: Own a beach bungalow in Goa, 20 years from now
B. Choose your investment and link them to the goal
I know my destination and I know the time in which I want to be there. So I will chose investments which match this time frame
Goal 1: Vajra’s education, 16 years from now
Long term goal needs long term investments: Invest Rs 2,000 monthly in Public provident fund and Rs 2000 in an equity fund through a systematic investment plan (SIP)for at-least 13 years.
Open the PPF account or a mutual fund SIP (or whatever other investment option you may chose) in the child’s name. Believe me, it will be a great deterrent for you to not to withdraw that amount. A friend of mine started doing SIP in funds in both son and daughter’s name when they were just few months old. It worked for him as he felt embarrassed to withdraw that money whenever his monthly budget fell short.
Short term goals needs short term investments- For my goal of vacationing abroad or in Kerala’s backwaters, I have promised myself to spend less time shopping in malls or even clicking on online retailers emails about festival dhamaka offers. Spending less now to spend more in future is one way of meeting short-term goals. The other way is to pick investments, which mature or can be withdrawn closer to your short-term goal.
Every two-three years from now I will review if my SIP investments for my son are giving good returns otherwise I will switch to another fund. Atleast two years before he is ready for college, I would withdraw this SIP investment and keep it in a 2-year fixed deposit. When it’s time to run around for college admissions etc, I will have a tidy pool in FDs and PPF.
If the investments are done in an avenue such as real estate, be ready to sell it much in advance before you need the money.
Hope you liked Gyani Gruhini’s quick guide to smart investing. Always remember the golden rules:
Set a goal, choose an investment and link it to a goal, and review it before you forget about it.
Feel free to write to me at firstname.lastname@example.org