If anyone asks me what keeps you going through the long week, I would say my upcoming trips. I am in either of the two phases; I am traveling or planning to travel. As I pen down this article, I am in the latter phase. I am planning my Europe trip for October/November this year. Finally, I will be fulfilling my long-standing dream. No, it’s not just roaming around Europe, it’s something way more exciting. But, that’s for a different blog post.
Here, I would like to share my financial decisions which help me to ensure that I have enough funds to fulfill my travel goals. Of course, I also have other financial goals as well apart from traveling and these decisions help me in achieving those too.
Enjoying snowfall in Arunachal Pradesh
- Enforced lack of liquidity
When you make money, you start thinking where all can you spend it. You can buy that pair of shoes which you wanted for a long time or you can just go out with your friends and splurge on expensive cocktails. it’s a human tendency to spend flamboyantly when your money accumulates, and you have extra money, even after catering to all your needs.
Now, I had that tendency too, a strong one. But over time, I have started to realize that the more liquidity I have, the more I spend. So, as soon as my bank balance goes above a certain amount, I either invest somewhere or transfer it to a bank account which I don’t use for day to day spends. That way, I always have a fixed allocated budget in my running account which runs till the end of a month. So, if I can’t afford something by using funds from my running account, I really can’t.
- The Essentials
There are certain essential financial planning tools which you should consider. Health and life insurance remains of paramount importance. You never know what surprises life holds for you. So, every month I ensure that my premium amount for these two is paid before I spend it on anything else. The premium amount, especially for a term plan, is very less as compared to your other costs.
The remaining amount, after considering my day to day expenses, goes towards my travel fund and other financial goals.
Smiling monks at a Monastery
Not many people are confident about investing in the equity investments despite having a wide range of information at their disposal. In such a scenario, it is advisable to invest in a SIP program, where every month an amount is deducted from your account and invested in a mutual fund scheme.
The systematic investment program helps you acquire units of mutual fund schemes. These schemes have a portfolio of shares which is handled by a financial expert. So, every month your money gets invested in equity, and you don’t need to know a thing about share market.
Irrespective of the market going up or down, over a long-term period, you will see a positive return on your mutual fund investment.
- Equity – Debt balance
Depending on your age and responsibilities, you need to decide the split of your investments. If you are a risk taker, you can go as much as 100% investment in equity. If you are more of a conservative investor, you can go for 50 – 50 splits in equity – debt tools. I have around 80% investment in equity tools which gives me decent return.
- Retirement fund
Even if you have planned your short-term goals well along with essentials like Health insurance, the retirement fund stays very critical if you want to spend the later part of your life comfortably. You need to start investing regularly towards creating your retirement fund. When I am creating my travel fund, I am also considering investing in my retirement fund.
My decision of starting a retirement fund lets me plan my travel goals effectively and realistically.
Planning my finances well helps me a lot in taking frequent trips to such awesome places!
- Multiple revenue sources
Don’t be content with one source of revenue, be it salary or business revenue. Always try to create additional revenue sources which are sustainable and scalable. This will come handy to achieve your financial goals. But how to create additional revenue sources?
There are many ways to do so. You just need to identify your skills that you can utilize to make money. It can be photography, photo editing, writing anything. But, you just need to be prepared to put in a lot of effort to build your portfolio. When you start building your profile, be prepared to not earn anything for the next 2 years. But if you are consistent and market yourself right, you will start earning soon. The key here, is consistency.
- Saying No, a lot
We all have a set of friends who have different priorities. Some consider spending money on expensive food and drinks as a part of their weekend. I have some friends who watch every movie in theatre. Well, that’s how they want to live their life. But are those your priorities as well?
If yes, go ahead and do it. But if not, learn to say no. The moment you learn the skill to say ‘No’ in an assertive way, you will realize that the amount of money you save will increase.
- The Rocks & Pebbles theory
You need to identify the rocks, pebbles and sand in your life. This theory is derived from an experiment. Suppose you have some rocks, pebbles and sand along with a jar. Now, you need to fit these 3 in a jar. What happens if you put sand first? You might not have space to put rocks on top. You might be able to fit in pebbles, but not all your rocks will fit.
But what happens if you fill in your rocks first, pebbles next and sand last? The sand will seep in through the rocks and pebbles. Eventually, you will be able to fit in all three.
If you apply this analogy to financial planning, you will understand that retirement fund, term plan, health insurance, travel goals, child’s education etc. are rocks. Experiences or entertainment which you find worth spending on are pebbles. What is sand? Sand represents the unnecessary expenses which you spend just because you are habituated or are acting under peer pressure. Get your rocks and pebbles fit first, then try to fit in sand.
For sound planning, you need to use your money towards rocks first, then pebbles. If you have some money remaining after that, then sand.
- Need vs Want
“Hey, you know about the ongoing online sale, right? What are you going to buy?” We come across such conversations a lot.
“No, I am not going to buy anything.” You reply.
“Sure? There are some amazing discounts!”
“No, I don’t need anything as of now.”
If you stick to your decision of not buying anything, you have identified your need correctly. While your friend is still giving priorities to wants.
Before spending on anything, ask yourself this question. Do I need it, or just want it? If you don’t need it, don’t spend. This is the simplest fundamental which has helped me in saving more money.
I need to travel frequently in order to be happy. So, I sacrifice a lot of my wants!
- The Delta Theory
The delta theory defines the difference between your actual self vs aspirational. The difference is delta. Some people have very high delta. The difference between their actual self and aspirational self is huge. For some, the delta is low. They are very close to becoming what they always wanted to be. Irrespective of your delta, you need to spend money only on something that helps you close this gap, reduce the delta and inch closer to becoming your aspirational self.
Let’s say I own a hatchback now, but my aspiration is to buy an SUV. The more money I save, the closer I get towards my aspiration and reduce my delta.
About Aegon Life:
Launched in July 2008 with pan-India operations, Aegon Life Insurance Company Limited has a vision to be the most recommended new age life insurance company. As a joint venture between Aegon – world’s leading financial services and Bennett, Coleman & Company – India’s leading media house, Aegon Life Insurance adopts the power of global expertise to facilitate a direct to customer approach, leveraging digital platforms to bring transparent solutions, and to prioritize customer’s needs. Our product portfolio includes term life insurance plan, pension plans, unit-linked insurance plans (ULIPs), health insurance plans, child education plans, and more.