Ideal with a lot of millennials and I realise that they are finding it difficult. For most of them the conversation starts with “do an SIP....” and they say the following: “You do not know how expensive it is to live!”, “I have other expenses too, sir”, or “I have no idea how Priti (or Rahul) saves `15,000 a month”.
And suddenly one day he/she will call and say “I have a lump-sum of `70,000, where can I invest?” or even worse “I bought a life insurance policy from...Bank” or “See, I told you... my husband made me make a down payment for the third flat which we do not need” or something like that.
I keep telling all investors, if you do not do goal setting, investments will fail. Investing is about setting a good process and making sure that you stick to the process. It is the ‘WHY’ which is so very important.
Now imagine a couple earning about Rs 1,50,000 a month. Let us say they prioritise their expenses as follows:
Now clearly all your expenses should be revolving around these 5 ‘whys’ of spending. This means there will a dramatic cutting down of junk food, eating out, buying that 9th tee-shirt, or 13th pair of shoes, or... that will put some money in your hands without feeling deprived. ONLY after you do this exercise can you now think of investing. Again, you need the ‘why’ of investing. So let us say the broad ‘whys’ are like this:
Once you have these broad ‘whys’, you can sit and work out your goals — specifically choosing products suitable for each goal. This is not strictly necessary for goals falling in the same ‘time bucket’. For example, if you are a 30 year old girl with a 2 year old kid, clearly your retirement is going to be a little after your daughter’s wedding (eeks, I hate this, but most Indians love this goal). So, if your daughter’s wedding is 25 years away and your retirement is about 30 years away, you can invest into a bucket of 3-4 funds... and hope to withdraw first for your daughter’s wedding..and then for your retirement. The product choosing does not matter as much as the process matters.
You must stick to these ‘why’ of spending — so that you go to a mall and do not feel deprived that you are not buying something. You know it does not fit into your ‘why’. Then you choose buckets of 4-5 funds from 2-3 fund houses and create “upgrading a house bucket”, or “upgrading a car” bucket (aka goals).
Then you don’t ask stupid questions like “In an election year should I stop the SIP”. You know why you are saving. You know why you are investing. YOU set the goals. Try this. Then walk into a mall with your husband, and see how both of you do not succumb to the unnecessary stuff that you have/had an urge to buy.