Nothing says the words “adulting” like coming to terms with setting independent financial goals. For me, this hit about a minute after I said the words “Okay, I am going to try to sustain myself through grad school.” Also, wanderlust is nowhere as cheap as Instagram makes it out to be. Similar epiphanies dawned up until my 20th birthday. Finally, I set financial goals for myself. Let me take you through what that was like.
With my day job as a CA article, how hard could it be to keep my hands off my money and put it in a place more productive than my bank account? Boy, was I in for a surprise!
As a part of my process, I spoke to my friends, parents and spent hours scouting through the internet to define my financial goals.
Several scribbled notes and overwhelming google searches later, I settled on three goals each with their own horizon:
Goal #1: To start building a grad school survival fund –> 10 years
Goal #2: To have an emergency fund post undergrad –> 3 years
Goal #3: To fund all my current discretionary expenditures –> 0-2 years
However, a goal could be something fun too – buying a laptop, a car, bringing home that beautiful bag you’ve had your eye on or making that trip that was always too expensive.
Infact, this could be the motivation to get you started!
BUILDING MY PIGGY BANK
Disclaimer: This is my personal experience!
Fortunately, I live with my parents and do not have to make a contribution for any of those household expenses which gives me the space to invest a majority of my monthly income. But if you do, I truly applaud your sense of responsibility. You can most definitely achieve your goals, and even cultivate a deeper sense of discipline. Don’t believe me? Here’s your cheat sheet!
Now, here’s a breakdown of what I enlisted 5 years ago when I began my investment journey:
- The Occasional Indulgence (0-2 years): I started off by investing my available savings into a mutual fund in the form of a quarterly SWP (Systematic Withdrawal Plan) which is a medium to park idle cash and set up convenient spaced “encashing options.”.
What is an SWP? Let’s say you have Rs. 1,00,000 in your bank account but your monthly expense is Rs. 10,000. A systematic withdrawal plan will allow you to get Rs. 30,000 every quarter whereas your balance cash will earn a return instead of sitting idle in your bank account. This allowed me to fund my 3rd goal and keep some for occasional splurges.
- The Backup Plan (3 years): This fund was created as an emergency fund post undergrad. In a scenario like 2020 where COVID-19 hit us, the uncertainty levels are maxed out. Although, these events are usually a one off. Therefore, this is where I experimented with my money and invested in the stock market. A combination of SIPs and stocks built this nest egg. 50% of my monthly savings were invested into Mutual Funds (in equity funds and Gold). This reserve is to be spent only after my undergrad.
- Grad school survival fund (10 years): A longer horizon calls for the least contribution but the most discipline! What kicked off as a quarterly SIP (Systematic Investment Plan) initially progressed into a monthly one. This is where all my savings are kept safely. Grad school, I’m getting ready for you!
Mistakes I made and lessons I’m still learning
While consistency and dedication is key, there can be 1-2 months where you end up splurging and saving less. Albeit, regularly ignoring your contribution or taking December debauchery too far would only defeat the purpose of the process. Remind yourself of the end goal and I promise you, those Airpods will feel even sweeter when they’re bought for by compounded cash.
There’s a thin line between reinvesting gains and being plain greedy. That line is a truckload of self-discipline and awareness of what is “enough.” Sure, being in my early 20s I could foster a higher risk appetite, but does that justify imitating a trader from the internet? Or, blindly following experts and peers in search of unsustainable profits? Absolutely not.
The stock market is fickle to say the least. Even seasoned traders have been triggered by short term volatilities. While being aware of developments is healthy, stalking your stocks daily isn’t. Instead, taking this time out to brush up on stock market basics, understanding different instruments and diligently following financial news would prepare you to rebalance your portfolio, when needed.
Just like your fitness or academic journey, aggressively comparing your progress is only going to skew your judgement and hamper your confidence. Instead, forming a collaborative group with a few trusted friends or peers, with the aim of learning the nuances of retail investing, would be far more productive.
Financial independence is not a current priority but the destination: A true long-term goal would be setting up for a comfortable retirement, not being able to afford things you don’t really need. This is something I’m still struggling with. Having access to a regular salary in my late teens did lead to multiple shopping sprees. I thought I aced the game when I bought my own clothes, paid for dinners, drinks and travel; however, that lovely little misunderstanding lasted a good year, before I realised YOLO isn’t going to cut it and I needed to take savings seriously. So, I did.
Where do I stand now?
We all slip from time to time, or in my case end up in Goa plans and treks that didn’t get canned. I even shamelessly spent all my bonus in my first year, but I channelled all that guilt into studying up personal finance, and trading restaurants for roti sabzi for the months that followed.
I still have a long way to go but I am extremely grateful for the patience and self awareness I cultivated along the way. I haven’t got everything right thus far, but I must’ve managed to do something right (hellooo college fund :D). Who can predict what’s coming up in 2021 after this bizarre fever dream? My point being: We set goals for our financial independence, for a life we dream of not for a spiral we can’t afford.
Over a longer-term horizon, well-defined, realistic goals are achievable. So how about a lil saving up sesh? Let’s chalk out our investment goals, one abandoned shopping cart at a time.