In my previous blog post, I discussed the checklist for achieving a happy financial life. The first item on the list emphasized the importance of planning our finances and determining the minimum amount we should save. It’s crucial to allocate a portion of our savings towards retirement, as once we retire, we will no longer receive a monthly salary. However, it’s also important not to overlook other significant expenses and responsibilities that we may encounter as we age. Therefore, retirement should not be our sole long-term goal.

Let’s begin by considering my a family of four with two kids.

1. Higher education for my elder child.
2. Higher education for my younger child.
3. Seed fund for elder child.
4. Seed fund for younger child.
5. Retirement fund.

Additionally, there are several short-term goals, such as purchasing a new car, which require separate planning. In this post, however, I will focus on strategies for achieving the long-term goals mentioned above. To accomplish these goals, we need to consider two important factors: cost and time span. While time span is relatively easy to calculate, estimating the cost is often a matter of prediction, though we can come up with a reasonably close approximation.

Let’s start by determining the required funds for higher education. Currently, education costs are increasing at an inflation rate of around 8%. Although this figure may vary in different regions, let’s calculate based on a worst-case scenario. Each degree program has its own cost, and since we don’t know what our children will be interested in the future, it’s prudent to save for the costliest degree. Currently, studying medicine in a private college seems to be the most expensive option, with an average cost of approximately 60 lakh rupees. Considering that elder child has 12 years left until college and younger child has 14 years, we will need around 1.5 crore rupees for the elder one and 1.7 crore rupees for the younger one, taking into account the current inflation rate. While I cannot guarantee that I will definitely need this money for their education, it’s essential to have some funds available to assist them if the need arises, and any remaining balance can be covered through an education loan. Therefore, I will set a target of 1 crore rupees for each child.

Now, let’s discuss the concept of a seed fund and how much we need to save for it. In startup culture, a seed fund refers to the capital required to begin developing a business idea. In real life, this fund can help our children start their lives with their partners or pursue business ventures. It’s advisable to save this fund as an alternative to spending it on unnecessary expenses associated with marriage. While the specific amount needed for a seed fund is subjective, if 30 lakh rupees is currently considered a good amount to start a business, accounting for an inflation rate of 10% over 20 years, 2 crore rupees would be a suitable amount to support future endeavors.

Moving on to retirement planning, assuming I retire at the age of 60, I have 27 years to save for my retirement. It’s important to note that our expenses will generally decrease after retirement since we no longer have to provide for our children or commute to work. However, other expenses, such as medical costs, may increase. Therefore, the key to a peaceful retirement is taking care of our health and saving money. To determine the amount needed after 20 years, we must first assess our current expenses. On average, lets assume monthly expenses amount to 60 thousand rupees, which adds up to 7.2 lakhs annually. After 20 years, we will require approximately 40 lakhs per year. If, for instance, bank fixed deposits provide a 4% return in the future, I would need to have 10 crore rupees in my bank account to sustain my retirement comfortably.

By considering these long-term goals and the necessary funds for each, we can create a comprehensive financial plan that aligns with our aspirations. It’s crucial to regularly review and adjust our plan as circumstances change, ensuring that we stay on track to achieve a financially secure and fulfilling future.

Below is the sum of all the above goals

Goal	Years left	Amount needed	Monthly SIP (12% return 10% increase yearly)
Elder College expense	12	1Cr	20,000
Younger College expense	14	1Cr	15,000
Seed fund for Elder	20	2Cr	11,000
Seed fund for Younger	22	2Cr	8,000
Retirement	27	10Cr	20,000

Equity is a best place to invest for long term goals assuming a moderate target of 12% return annually. I have written a post on how these investments can be made here. If you start planning early, then the amount reduces as time increases. If incase you have surplus remaining after these SIPs, then you can invest the remaining for your other low priority goals like Home, New car, Big vacation, etc. I hope this post would have given you an idea on how to plan for long term goals.

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