Gogotă Mădălina-Elena, grupa 1011, anul I

Facultatea de Cibernetică, Statistică şi Informatică Economică

The Economic Times, 23 Nov 2015

How to meet your life's financial goals & retire happily

Dreaming of buying a house? If you don't want your dream to turn into a nightmare, put it through a reality check first:
Can you afford the EMI without hurting other financial goals? Have you saved enough for the downpayment? Will you
be able to prepay the home loan?

Your answers will tell you whether you can shoulder this long-term financial commitment or are better off living in a
rented house. Our lives are lined with many such milestones—starting a family, launching a business or even retiring
from work. Some of these are critical goals and the target date cannot be shifted.

The decision to start a family cannot be postponed just because the finances are not in good shape. Other goals are
more flexible and their timeline can be changed. If the individual hasn't saved enough, he can push the decision to
retire early by a few years.

Similarly, plans to upgrade to a bigger car be put on the backburner if the EMI will replace the mutual fund SIP for
child's education.

Our cover story this week looks at key milestones and the steps that prepare one for the financial impact of these
decisions. Much depends whether the individual's finances can take the impact.

Advance planning and disciplined investing can help one reach these goals without difficulty.

There's a lot to rom Mumbai-based Ameet Kalyanpur, who has diligently built up a sizeable corpus which will let him
retire at 45. Equally, you can learn from Omkar Kulkarni and Jayshree Kalghatgi, who plan to start a family soon but
have no life insurance cover.

We give a checklist for each goal. Use them to know if you are prepared to take the plunge or need to rejig your
finances.

To buy a house:

Your own house helps you save rent but you must have the resources for this long-term financial commitment

For the generation before us, a house was usually bought at the peak of the career or after retirement. Now things
have changed and the average home buyer purchases his first property in his early 30s, thanks to fat salary
packages and double-income households.
What hasn't changed, however, is that a house is still the biggest investment for most families. One must be prepared
before taking the plunge. You should have saved at least 20-25% of the home value for the downpayment. Anything
less means taking a bigger home loan, which can jeopardise other goals. Ideally, loan EMIs should not exceed 50%
of your total household income.

To retire early:

Quitting early is a double whammy because you get only 15-20 years to save for 30-35 years of retirement

If many people are buying homes early in life, many others are quitting work well before they turn 60. Bohemian as it
may seem, an early retirement is very tough. In the normal course, a person saves for around 35 years (from 25 till
60) for about 20 years in retirement.
For Mumbai-based Ameet Kalyanpur (see picture), the equation has reversed. He will save for 20 years to sustain 35
years in retirement. But he has done all the right things to reach his goal, combining diligent investing with prudent
planning.
Gogotă Mădălina-Elena, grupa 1011, anul I
Facultatea de Cibernetică, Statistică şi Informatică Economică
The Economic Times, 23 Nov 2015

The first step is to find out how much you will need to sustain your expenses. This calculation should take inflation
and your life expectancy into account. "One should assume a life expectancy of at least 90 years and inflation of
around 7%," says Bhuvana Shreeram of the Mumbai-based Financial Freedom Golden Practices. Besides saving
enough, early retirees should also ensure they don't have too much debt when they stop working.

To start a family:

In the excitement of welcoming a new member to the family, don't miss the changes needed in your finances

Parenthood is a very significant change in anybody's life, but very few are prepared for its financial implications. You
are going to be fully responsible for a person for the next 21-odd years. The first thing to be prepared for are the
medical expenses relating to childbirth.
Even a normal delivery case can leave you with a bill of Rs 50,000-60,000. If it is a caesarean section, be ready to
shell out close to Rs b1-1.5 lakh. Besides childbirth, there are post-natal expenses like vaccinations, medicines and
regular visits to the doctor. You might also have to hire a household help.
Make sure you have enough life insurance (6-8 times your annual income) and have included the newborn in the
family floater health plan. This is also the time when an emergency fund is essential. "While a typical emergency fund
will be enough for 3-6 months of expenses, we recommend at least 9-12 months' expenses at this stage. The mother
may extend her maternity leave or have medical complications," says Priya Sunder, Director of Bengaluru-based
PeakAlpha Investments.

To buy a car:

A car is convenient and useful, but differentiate needs from wants when you make this purchase.

A car is both an asset and a liability. It is an asset because it offers convenience and enhances the lifestyle of the
user. But it can be a liability if the owner buys a vehicle he cannot afford.

Mind you, the on-road price of a car is not the end of your expenses. The real cost of car ownership includes
recurring expenses like fuel costs, servicing, repairs and insurance. It is important to differentiate wants from needs
when you go shopping for a car. In many cases, it becomes a lifestyle choice than fulfilling a need. It is alright to have
aspirations, but not if they come at the cost of a more important need. So first figure out if your monthly surplus has
room to accommodate the additional expenses. Ideally, you should have saved 20-25% of the value of the car for the
downpayment. The car loan EMI should not exceed 15% of your monthly income.

To launch a business:

Entrepreneurship is a great idea, but it could turn sour if your finances are not geared for the switch

Start-ups are the favour of the season and hundreds have been bitten by the entrepreneurship bug. While starting
your own business can be a very rewarding proposition, it is equally true that 90% of new businesses fold up within 2-
3 years of launching.
While some fail because their products or services are not good enough, many entrepreneurs are forced to pack up
due to personal cash crunches. Even before they get funding, their pipelines dry up. This is more often because of
poor planning than lack of funds. So, clearly, you'll need more than a just a business plan.
You should have saved a lot of money before you launch a business. You will not get a pay cheque for a while and
therefore need to make adequate provisions for it. Make a budget with the list of obvious monthly expenses. Then
there are yearly expenses like insurance premiums. Also, leave some room for expenses such as children's
education and rent could increase.
Gogotă Mădălina-Elena, grupa 1011, anul I
Facultatea de Cibernetică, Statistică şi Informatică Economică
The Economic Times, 23 Nov 2015

I chose this article because I believe that we find the essential things about how we should
organize our own life in order to live happily, peacefully both in financial terms and in the family plan.
Firstly, our life goals are buying a house, starting a family, launching a business or even retiring
from work. We must be cautious and we have to know how to schedule each goal as well as possible
because the decision to start a family cannot be postponed just because we have not enough money. Other
goals we can hold over according to our financial possibilities.

According to the article, the first goal is to buy a house we must be very careful to evaluate our
financial resources and we need to choose the best building that you will call "home" because it spares us
the rent, but you still have to pay the banks. A house is still the biggest investment for most families, this
is a sure thing, but times have changed. Our parents were able to buy a house when you had all the money
available or only when they retire. Now with a bank credit we can have our own home but also a duty for
almost 30 years. If you do not have a steady job we cannot make a long term commitment, that we have
to buy a smaller place, otherwise the bank does not give us credit.

The second goal is to retire early. This retire has a downside because you have to save money for
your all years of retirement and you must have a cash reserve. So, to have a slight retirement you must
combine diligent investing with prudent planning. Very important is that we should have adequate health
insurance and an emergency fund to take care of unforeseen expenses because in this way the retirees
outlive their savings.

The third goal is to start a family. When you make this decision you need to think about the costs
that are involved. Starting with birth, education, medicines and regular visits to the doctor . We should
make sure to have enough life insurance and have included the newborn in the family floater health plan.
If the mother quits working after childbirth, the household income will drop.

The next goal is to buy a car. If But it can be a liability if the owner buys a vehicle he cannot
afford. This is useful as you can move easily from one place to another, but you have to make the
difference between "wanting" and "to allow you". We must be careful and we must have at least a quarter
of the money for the car to pay the down payment. The loan must be for a few years and we have try to
use that car for at least 5 years. There are people who prefer second-hand market, but such a car needs to
be upgraded in a few years.

And the last goal, even if we can choose the order, is to launch a business. To start your business,
first you must have a defined plan. We must have saved a great deal of money because the labor market is
predictable and many businesses fail in the first years of activity because their products or services are not
good enough, many entrepreneurs are forced to pack up due to personal cash crunches. We need to keep
aside an emergency fund for unforeseeable events such as a medical emergency or machinery
breakdown.

In conclusion, it must always set a plan in time, in order to have not unpleasant surprises,
and in retirement years to be calm and secure on any plan.
Gogotă Mădălina-Elena, grupa 1011, anul I
Facultatea de Cibernetică, Statistică şi Informatică Economică
The Economic Times, 23 Nov 2015