Laying the foundation

When asked about our goals, each of us has a long list containing our aspirations, dreams and more. While some may be basic needs, others have a greater purpose of self actualisation. It always helps to be organised and the process of goal setting is no exception to that. When faced with a daunting task, we find it easier to break it into smaller tasks and finish the easier ones first. This method works well for financial planning too. This process can be explained better with the help of an example.

Let us take the case of Pankaj, who is a 35-year-old information technology professional. He has a wife who is a homemaker and a five year old daughter. He has an annual income of Rs.10 lakh. Let us prioritise his goals on the basis of time horizon and need requirement:

Immediate Goals

The first and foremost priority for any individual is to protect all his assets. There are two aspects to it – financial security and liquidity

He has to first provide financial security for self and family which will provide much needed relief during a crisis. Adequate insurance for health and life is the most important step towards this direction. Ideally, he should be covered for:

Health Insurance

It is beneficial to have a family floater health policy which will cover two adults and one child. The sum assured has to be chosen depending on the monthly surplus and his social strata. We suggest a health cover of at least Rs. 5 lakh for Pankaj.

Life Insurance

It is essential to have an adequate life cover which would enable his family to carry on without any financial strain during his absence. There are quite a few methodologies to calculate the required life cover for an individual, for example: human life value method, need based method etc. The thumb rule, however, is to have a life cover equal to 10 times one’s annual income. Thus, Pankaj should have a life cover of at least Rs. 1 crore.

Other insurance

He should have insurance to cover his assets and liabilities. For instance, he should have an insurance to cover his outstanding home loan. He should also have an insurance to cover his assets such jewellery, house against burglary amongst others.

Apart from this, he should also have sufficient liquid funds to depend upon during times of emergencies. It is advisable to hold an amount equal to at least three months salary.

Medium Term Goals

The next step would be to list down goals which are to be fulfilled within the next five years. Pankaj has the following as his medium term aspirations:


He wants to upgrade his car to a sedan in two years and it currently costs Rs.10 lakh

Holiday Abroad

A trip abroad with family within the next three-four years costing Rs.2 lakh


Purchase a flat worth Rs.40 lakh within the next five years

Pankaj has stated his goals with the approximate cost of each. However, we have to take into consideration the general increase in the price level of the economy (inflation) to arrive at each of their future costs. Let us assume the inflation factor to be at 7 per cent. Then, the expected future costs of his goals are:

  • The cost of the sedan after two years will be around Rs.11,45,000
  • A holiday trip abroad after four years will be Rs.2,62,000
  • The flat which costs Rs. 40 lakh today, will be Rs. 56 lakh after five years.

The future estimates are made using the concept of future value and a financial advisor will be able to help you with the same.

Long Term Goals

Any goal which will require a time horizon of more than five years has to be classified as a long term goal. Pankaj wants to build a corpus to fulfill the following goals:

Start a business venture

he wishes to start a business in the next eight years and currently he requires a capital of Rs.25 lakh

Child’s Education

He would require funds for his child’s education after 10 years. Cost of higher education as on date is around Rs.10 lakh

Child’s Marriage

For his child’s marriage he requires Rs.15 lakh and it will be required after 15 years

Retirement Corpus

after 20 years

Assuming inflation at the same rate of 7 per cent, the future cost of his goals will be:

    • To start his business venture, he will require a capital of Rs. 43 lakh after eight years
    • The corpus required for child’s education after 10 years will be almost Rs.20 lakh
    • His child’s marriage which today costs Rs.15 lakh will be Rs.41 lakh after 15 years
    • Pankaj’s current monthly expenses is Rs.50,000 per month. Further, we assume his life expectancy till 80 years of age. Thus, at the age of 55, he will require a retirement corpus of Rs.3 crore

The process of goal setting is the first and the most important aspect of financial planning. While the broad parameters or steps remain the same, individual goals may vary depending upon one’s occupation, age, dependents and more. It is advisable to take the assistance of a financial planner who will, taking into consideration the said parameters, set a customised goal chart for you. In the next issue we will focus on the next step of financial planning – Net Worth Statement.

To reach a Chola Wealth representative please call 1-800-425-4477 or email us at

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