How to achieve your financial aspirations

There could be close to 9 million species in the world as per various estimates by scientists. These mind boggling numbers point to biodiversity of our planet. Irrespective of the exact number of extant species on the planet, what one can be certain of is that there is one particular specie which is unarguably the master of planet earth. Yes, you guessed it right. It’s the Homo Sapiens or Humans who rule the roost on this planet.

While humans shared common ancestors with apes more than 7 million years ago, humans have evolved owing to a series of physical and physiological changes over millions of years. What exactly differentiates humans from apes or for that matter any other specie of the natural world? Communication skills, reasoning ability, problem solving ability and self-introspection. More importantly, most animals live in the present and act purely on their instincts. On the contrary, humans think about the past, present and more importantly, the future. This paves way for aspirations and goals in our lives. Aspiration is the hope of achieving something in future, which you possibly cannot achieve now.

In a country like India, with a burgeoning middle class and large population of youth, aspirations and quest for lifestyle upgrade can range from buying the latest smartphone to buying a 4K Ultra HD TV and from a fancy vacation in Europe to a plush large house. Some may want to buy a new car, while those who already have one, may want to upgrade to a bigger car/ SUV. Growing aspirations fuelled by a growing economy mean that people are no longer satisfied with merely having a roof over their heads. Easy availability of debt, increasing peer influence due to growing influence of internet and social media, obsession to ‘keep up with the Joneses’, improving standards of living have resulted in people aspiring more and more with every passing day.

While it doesn’t take long to aspire to new things and come up with ideas to upgrade lifestyle, it does take long to gather the wherewithal to fulfil them. Without foresight and proper planning, people adopt the quick fix of loans to upgrade their lifestyle and end up in a vicious debt trap.

While upgrading lifestyle is equated with happiness, doing so unsustainably by resorting to huge debt burden is counter-intuitive and defeats the whole objective of aspiring for a better lifestyle in the first place. Does this mean that one should not look to upgrade one’s lifestyle and be content with status quo? Not at all. Lack of aspiration or not aiming for a better lifestyle can actually promote mediocrity in our lives. What one needs to do is not curb aspirations but to chalk out a financial plan to meet these goals.

An advisable way of fulfilling aspirations is by investing through SIPs (Systematic Investment Plan) in mutual funds, keeping the target amount and time horizon in mind. The beauty of SIPs lies in negating market timing risk through disciplined investing and rupee cost averaging (buying more units at lower NAVs and vice versa). The type of mutual funds to invest in would depend on investment horizon, criticality of the goal and corpus required.

Further, one also needs to be reasonable about one’s aspirations and set realistic financial goals. Just like Rome was not built in a day, a massive jump in lifestyle cannot be achieved overnight. Various aspirational expenses need to be planned well in advance. In the case of house purchase, it could range from 5 to 10 years. For a car, the time horizon could be 1 to 3 years, while it could range from 6 months to 2 years for a vacation. Time and financial planning are the only tools at your disposal to sustainably achieve everything that you aspire for.

(By Shyamali Basu, Senior Vice President & Head – Products & Marketing, HDFC Asset Management Co Ltd)

Disclaimer: The views expressed are the author’s own views and not necessarily those of HDFC Asset Management Company Limited.

Source: Financial Express