How to go for a foreign vacation every 3 years?
26 Jun 2021 - Contact Sayan Sircar
Set Goals
Walk-through: Get the SIP amount for recurring goals like a dream vacation every few years
Table of Contents
- Asset allocation and target return for a recurring goal
- After one year of running the SIP
- A note on having the pre-requisites in place
- All posts in this series
Asset allocation and target return for a recurring goal
We have already covered
- how and why to set a goal
- how to get asset allocation for a single goal
- how to get SIP amount for a single goal
- how to get SIP amount for a goal with multiple payments
This post will deal with a recurring goal like going for a foreign vacation every three years throughout your life (for the next 30 years).
Assume that the goal amount is 4 lakhs (as per today’s cost) every 3 years for the next 30 years starting 2 years from now. So this is a plan for 10 vacations using the same framework followed for multiple goals with constant inflation of say 5%. We should keep in mind that inflation for vacations can be unpredictable due to how fuel prices, demand at various tourism locations and other factors play out.
Assume 2 lakhs is available today which is allocated to the first year’s vacation.
These are essentially 10 single payment goals:
- Goal 1: Vacation 1: 4 lakhs adjusted by 2 years of inflation in 2 years
- Goal 2: Vacation 2: 4 lakhs adjusted by 5 years of inflation in 5 years
- Goal 3: Vacation 3: 4 lakhs adjusted by 8 years of inflation in 8 years
- ….
- Goal 10: Vacation 10: 4 lakhs adjusted by 29 years of inflation in 29 years
Using the single goal model the following SIP amounts are determined and the totals are added up as shown:
The 40 lakhs initial cost of the 10 trips are expected to be around 93 lakhs over the next 30 years. The initial lump sum amount is allocated to the first trip since that will happen first. A single set of SIPs are created: equity 5154 and debt 22107 along with one lump sum investment in debt of 2 lakhs as per asset allocation. Refer to these posts for investing in equity and debt funds.
These calculations are explained in this Google Sheets workbook.
After one year of running the SIP
The following needs to be done in this order:
- find the new corpus (C) which is the sum of the current value equity and debt fund values
- review the goal parameters (new horizon is 1 year less, review the current cost of the goals to adjust for actual market inflation etc.)
- re-balance between the equity and debt fund values
- Increase the SIP figure by 10% (or more, the model will tell you)
See this detailed post for the process for reviewing.
Our new Goal-based investing tool will help you to create and manage all of your goals in one place. Click the image below to get access:
Arthgyaan creates a system for reaching your financial goals by sharing simple, actionable advice backed by research and analysis.
A note on having the pre-requisites in place
At all times ensure that you have the following in place
- an emergency fund with 6-12 months of expenses
- a term insurance policy (unless you are retired with no income)
- a health insurance policy (separate from the company provided one if any) for 10-15 lakhs as a base policy with a 50-100 lakhs super-top up
- no high-interest debt like credit card or personal loans
All posts in this series
Please see below:
- how and why to set a goal
- how to get asset allocation for a single goal
- how to get SIP amount for a single goal
- how to get SIP amount for a goal with multiple payments
- how to get SIP amount for traditional retirement
- how to get SIP amount for early retirement
- how to get SIP amount for all goals together
- how to get SIP amount for recurring goals like vacations
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Asset Allocation (18) Basics (5) Behaviour (10) Budgeting (9) Calculator (10) Children (6) Choosing Investments (24) FAQ (2) FIRE (8) Gold (6) House Purchase (10) Insurance (6) Life Stages (2) Loans (10) NPS (3) NRI (3) News (5) Portfolio Construction (27) Portfolio Review (17) Retirement (20) Review (7) Risk (6) Set Goals (24) Step by step (3) Tax (10)Next steps:
1. Email me with any questions.
2. Use our goal-based investing template to prepare a financial plan for yourselfOR
use this quick and fast online calculator to find out the SIP amount and asset allocation for your goals.
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