The Money Guide: Mastering Personal Finance Amid Life's Critical Years

'The Money Guide' is your ultimate resource for mastering personal finance during the most critical years of your life. Authored by finance content creator Anushka Rathod, this comprehensive book offers valuable insights tailored for both beginners and those looking to sharpen their financial skills.

An Excerpt From The Money Guide

Remember how I said I wanted to go abroad to study? Well, had COVID not happened, I would have gone. So I started planning for it in mid-2018. I first identified when I wanted to go, which was 2020  (literally the worst year I could have chosen, haha).

Then, I estimated how much money I would require and planned for it accordingly. I invested whatever little money I had back then but was terribly short of what was needed and planned the rest from scholarships and loans. The structure I followed of mapping my goal, estimating the required amount, and planning for it is how we manage our finances to achieve our goals. 

I only had one goal back then; what if you have multiple goals? You must prioritise and make a portfolio of different investments to achieve them. In this chapter, we will discuss the same!

Step 1: List Down your Goals

The first step is to identify what goals you want to achieve. 

So, we start by listing significant life events that require substantial money. These goals could range from short-term ones like doing an MBA, getting married, or going on a trip to long-term goals like retirement. 

I know it isn't easy to visualise your future goals but try roughly writing them. You can always change them in the future and keep adding to the list with time. Start with 2-5 goals you have an idea of so you can start your planning. 

You can list them roughly using the following steps. Let’s break it down step by step:

1: List Down Your Goals Write down all your financial goals in chronological order.

2: Timeframe Matters Next to each goal, jot down how long you think it will take to achieve them.

3: Estimate the Costs For each goal, estimate how much money you’ll need to fulfill it as of today.

Step 2: Plan your Goals 

We’ve figured out our financial goals and estimated how much we need to save and invest. It’s time to plan how much we need to save and invest today, depending on whether the outflow will happen once or several times.

Your financial goals can fall into two categories:

• Pursuing an MBA 

• Retirement planning 

• Hosting a wedding

• Taking a sabbatical

One-time Outflow Goals:

• Pursuing an MBA 

• Hosting a wedding 

These are single, significant expenses, such as pursuing an MBA or hosting a wedding. 

Multiple Outflow Goals:

• Retirement planning 

• Taking a sabbatical

These goals involve ongoing or recurring expenses, like planning for retirement or taking a sabbatical.

Now let’s continue our previous exercise, according to the output you get for monthly savings for each particular goal write it down in the below table:  

At this step you will realise that it is not practically possible to achieve all your goals. Hence, you’ll have to prioritise. So write down your goals in order of priority.

Now, according to your priorities, you’ll either have to

• Eliminate unimportant goals

• Re-evaluate the amount that you need to save. For example, reducing the outflow required in marriage

• Reduce outflows of certain goals which are time-sensitive. Goals that are not time-sensitive can be started later when current priority goals are achieved. For example, once you have planned your finances for saving your home 5-7 years down the line, then you can start your retirement planning. 

Note: For short and medium-term goals, it might not always be possible to entirely save up for them; hence, you might have to take loans for the same.

Step 3: Categorising Goals to Invest

Once you prioritise and finalise what goals you want to start saving and investing for to understand where to invest, categorise them into these three buckets depending on when you want to achieve them. 

1. Short Term (Till 3 Years): These are your near-future goals. Things like building an emergency fund, paying off debt, or saving for a car

2. Medium Term (3-7 Years):  This is the middle ground – not too far away, but not right before you. It’s where you handle things like paying off student debt, saving for your wedding, getting ready to buy your first home, or giving your current one a makeover.

3. Long Term (7+ Years): These are the big goals that need some time and patience. We’re discussing saving for retirement or building wealth

So, there you go – a simple way to sort your goals and determine where to invest your money

Step 4: Investing According to your Goals

Now that you’ve categorised them according to time. This is where you can invest according to your goals. Don’t worry if you don’t understand the names of any financial instruments. We have explained them in the next segment. 

1. Short-Term Goals (Till 3 years):

If you’ve got short-term goals like saving for building emergency fund or going on a international vacation, you’ll want to play it safe. Here are some good choices: 

a. Fixed Deposits (FD): A secure option with guaranteed returns if you are certain about the tenure.

b. Sweep-in FDs: Offers more interest than a regular savings account while keeping your money readily available

c. Recurring Deposits (RD): A disciplined way to save periodically with fixed returns.

d. Liquid Mutual Funds: These mutual funds provide easy access to your money with low risk, ideal for short-term needs

2. Medium-Term Goals (3-7 Years):

Now, let’s talk about those goals that are neither too near nor too far, like saving for a wedding or saving for the downpayment of a house. Here’s what you should do:

a. Stable Return Instruments: You can invest 80-90% of your investment portfolio in stable return instruments and focus on investments with guaranteed returns. Consider options like National Saving Certificates, Mahila Bachat Patra, Post Office FDs, or regular FDs. 

b. Variable Returns instruments: You can invest a small part of your portfolio (about 10%-20%) in slightly riskier assets like Gold or Mutual Funds. Just remember, don’t go overboard.

3. Long-Term Goals (7+ Years) 

When it comes to long-term goals like retirement planning or building substantial wealth, you can increase your exposure to riskier assets like

• Gold

• Mutual Funds

• Real Estate

• Equity, PPF or NPS

By following these simple guidelines, you can make sure your investments align with your financial goals, helping you make those dreams a reality.

Excerpt from Anushka Rathod, Finance Content creator and Forbes Asia honoree 2024’s, book – The Money Guide