« How much of your income should you invest every month? Are you running your own mutual fund? Is it doing well? »

How to prioritize goals based on available monthly SIP amount?

Posted on 05 Jul 2021
Author: Sayan Sircar

Tags: Set Goals

5 mins read

What to do when goals do not proceed on track and not enough surplus is available for investing.

Investing as per budget

When an investment plan is prepared, there are many assumptions that are made regarding future equity and debt returns, salary growth and inflation that may not hold once investments have been running for a few years. Market returns may be different from what was initially available (higher or lower), salary growth may be lower or goals may themselves change. Due to this, a yearly review and rebalance is recommended. This post deals with what to do if the new SIP amount post the review is lower than expected. We will use the plan for all goals together to figure this out.

📚 Topics covered:

Starting point
10 years later from the start
How to revisit the goals?
15 years later from the start
- Some don’ts while revisiting goals

Starting point

As this shows, there is a SIP of ₹ 1,00,250 that has been started by a family for goals like a car, house down-payment, vacation, children’s education, retirement at 58 and early retirement (if possible) 5 years before 58 who currently have a corpus of ₹ 50 lakhs. Currently, the family is investing the most for children’s education, followed by retirement and FIRE. We will see what happens 10 years later. This is a typical scenario since the children’s education goals are due sooner than retirement and for many families, education goals are at a higher priority than the rest.

Recent articles:

1 / 3

<p>This article describes how to use the Arthgyaan goal-based investing tool as a calculator to determine if switching to the New Tax Regime makes sense.</p>

2 / 3

<p>This article describes a tweak that investors can implement to plan taxes more efficiently, given that non-equity funds will be taxed at slab rates after 1st April 2023.</p>

3 / 3

<p>This article shows the way forward for investors in debt, gold, hybrid and international funds which have lost indexation benefits on units purchased after 1st April 2023.</p>

❮ ❯

Join our WhatsApp community: You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.

10 years later from the start

Calculation of SIP amount 10 years later

We see that the portfolio of ₹ 50 lakhs has grown to ₹ 127 lakhs, the house has been purchased, the child is 13 years old and the previous single goals (car, vacation, school-related goals) have been reached with new car and vacation goals added. The biggest change here is the doubling in annual expenses in retirement from ₹ 5 lakhs/year to ₹ 10 lakhs/year due to inflation. Also as expected, all the other goals like children’s education and marriage have grown due to inflation as well. The new SIP amount is now ₹ 2.74 lakhs. The challenge here is that the family, due to other commitments (maybe a one spouse becoming stay-at-home or the impact of the home loan EMI) can only invest ₹ 1.7 lakhs/month.

How to revisit the goals?

Goals have three main parameters that lower the amount needed to be saved today:

Pushing out the goal horizon / reducing goal amount

Calculation of SIP amount 10 years later - Iteration 1

Here the car and vacation goals are pushed out for some time which reduces the SIP to ₹ 2.48 lakhs.

Re-prioritize the goals

Calculation of SIP amount 10 years later - Iteration 2

Do you want to save more for retirement vs. college education of children for which loan can be taken?

Here we reduce the PG education target (leaving a token starting amount) considering that they can be funded by loans and scholarships. This reduces the SIP amount to ₹ 2.05 lakhs.

Drop some goals

Calculation of SIP amount 10 years later - Iteration 3

For example, instead of early retirement, do you want to consider a more traditional retirement age or a lower time spent in early retirement? Here three years of early retirement is dropped (early retirement is now targeted at age 56 instead of 53). This drops the SIP requirement to ₹ 1.72 lakhs which is in line with what the family can now invest.

We will now consider the reverse situation 5 more years down the line.

15 years later from the start

Calculation of SIP amount 15 years later - Iteration 1

We see that the portfolio of ₹ 1.27 crores is now ₹ 1.25 crores, the next car has been purchased, the child is now in 2nd year which means admission fees and tuition/hostel and related expenses for 2 years have been paid. The annual expenses in retirement have increased from ₹ 10 lakhs/year to ₹ 14 lakhs/year due to inflation. There is now a ₹ 5 lakhs allocation to the marriage goal which was earlier not possible. The family now has ₹ 3.8 lakhs of SIP amount they can invest every month which is ₹ 29,000 higher than the ₹ 3.51 lakhs shown in the plan.

Calculation of SIP amount 15 years later - Iteration 2

We add back one more year in early retirement that takes the early retirement target to 55 (instead of 56 after 10 years) and this takes the SIP amount to ₹ 3.8 lakhs.

Some don’ts while revisiting goals

increase the expected return values from debt and equity: this is risky since if you do not get those returns, then the plan will be in trouble in the future
increase the SIP increment value to more than 10%: this pushes a lot of the investments to the future by assuming a higher salary
assume lower expenses in retirement: lifestyle inflation is a real concept and assuming lower expenses now may give a temporary lowering of the investment amount but this just pushes the problem to the future
assume a lower inflation rate: inflation is different from the official figures. The inflation applicable to you is closely related to your lifestyle and the basket of goods and services you consume. You need to closely track your expenses over some time to get an idea of what inflation applies to you. Until then, assume a high figure
increase the proportion of allocation to equity: taking more risk does not guarantee higher returns. If it did, then the risk would have been high and not low

What's next? You can join our WhatsApp community

You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.

Discover an article from the archives

Worked out case studies for goal-based investing

Case study: how this double income recently married family can perform DIY goal-based investment planning

This article shows how a young just-married couple can invest for future goals using the Arthgyaan goal-based investing tool.
Case Study: How should couples in their 40s with a new baby plan their financial future?

Did you welcome a bundle of joy in your 40s? This article will discuss ways of planning the child’s (and your’s financial future)
Case study: how this double income single kid family can perform DIY goal-based investment planning

This article shows how a very typical salaried couple with one child can invest for future goals using the Arthgyaan goal-based investing tool.

Previous and next articles:

<p>The answer is mostly “it depends” but you can easily figure out the number from this post</p>

Set Goals

How much of your income should you invest every month?

The answer is mostly “it depends” but you can easily figure out the number from this post

Published: 4 July 2021

4 MIN READ

<p>When you are investing in stocks directly, are you measuring your performance as a fund manager?</p>

Portfolio Review

Are you running your own mutual fund? Is it doing well?

When you are investing in stocks directly, are you measuring your performance as a fund manager?

Published: 6 July 2021

5 MIN READ

Latest articles:

<p>This article compares how the PPF has performed against the SENSEX since 1979 to help investors decide if they should invest a lump sum in PPF in April 2023.</p>

Choosing Investments

SENSEX vs PPF report card 2023: should you invest 1.5 lakhs in PPF in April?

This article compares how the PPF has performed against the SENSEX since 1979 to help investors decide if they should invest a lump sum in PPF in April 2023.

Published: 2 April 2023

5 MIN READ

Tax Calculator

Should you choose the new tax regime from 1st April 2023?

This article describes how to use the Arthgyaan goal-based investing tool as a calculator to determine if switching to the New Tax Regime makes sense.

Published: 1 April 2023

4 MIN READ

Topics you will like:

Asset Allocation (19) Basics (8) Behaviour (10) Budgeting (10) Calculator (15) Case Study (3) Children (11) Choosing Investments (32) FAQ (4) FIRE (11) Gold (6) Health Insurance (4) House Purchase (14) Insurance (14) International Investing (8) Life Stages (2) Loans (9) Market Movements (10) Mutual Funds (25) NPS (5) NRI (5) News (6) Pension (6) Portfolio Construction (42) Portfolio Review (24) Real Estate (4) Retirement (33) Review (11) Risk (6) Safe Withdrawal Rate (5) Set Goals (26) Step by step (9) Tax (22)

Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself
OR
use this quick and fast online calculator to find out the SIP amount and asset allocation for your goals.

Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.

Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.