What Holiday Planning Teaches About Saving & Investing?

While everyone is interested in making investments with huge returns and saving on big cash, many do not have a clue as to how they must use this money. 

Looking forward to shortcuts, tips and easy ways of minting money have become commonplace and as there are varied options for this, the process of taking saving and investment-related decisions has complicated. From fixed deposits to post office schemes, insurance plans, mutual funds, gold to even investing in real-estate, these choices that further come with multiple options and schemes have aroused confusion and complexity in people’s minds.

However, if investment decisions are seen like travel plans and dealt that way too, the entire process of investing will become less intimidating and more interesting. Let’s explore how.

1. What is the purpose of the travel (What is the purpose of Saving and Investment)
Why do you want to travel? Is it to get a break from a mundane routine? Is it to indulge in adventure sports like river rafting or trekking? Is it for a family get-together?

You decide your purpose of travel even before you set out. Why not apply the same logic to our hard earned money?

While investing, figure out why you want to save money. Whom do you want to save it for?

Is the investment planned only to save money for a rainy day? Write down these goals:
- Save money for buying an Audi in two years or,
- Save money for my daughter/son’s career, enterprising pursuits or,
- Save it for down payment of the house or for the child’s school admission three years later.

2. Get a travel budget in place (Get an idea of how much you can afford to save?)
Seychelles or Greece are great holiday destinations, but you will first look at your bank balance before opting for the travel package right?
While investing, you need to figure out how capable you are of saving. 

Here is how you can figure it out:

A. Get an idea about your monthly income from all your sources and your savings in the bank.
B. Segregate your monthly expenses as “Can’t live without”: groceries, bills, loans, school fees, insurance premiums“Can live without”: online deal shopping, upgrading phones, gadgets, cars
C. Set aside at least 6 months (8-12 months if you are conservative) of  “Can’t live without” expenses. Don’t ever touch this corpus as this saving will come handy in case of emergencies like hospitalization or loss of job.
D. The balance amount is your savings for the month

3. Prepare the Holiday itinerary or hire a holiday travel company (Prepare a financial plan or hire a planner)
Usually you plan out your holidays. You decide the budgets, ticket bookings and reservations well in advance to get better rates or discounts.

Apply the same logic to investing. Have a financial plan before you run helter skelter to invest in any financial product. A financial plan like a travel itinerary, is an action plan that helps you decide where to invest, to achieve your life’s purpose as mentioned above.

- For buying an Audi, put aside savings in a recurring deposit or fixed deposit. When you want to buy it, you can redeem the FD or the recurring deposit to pay the down payment.
- Just like a long or a distant holiday destination, plan in advance, for far-away purposes or financial goals like a corpus for kid’s education, marriage or retirement.

Unlike vacation planning, where you know how much the holiday is going to cost (except for our shopping indulgences), in Investing, you don’t really know about how much savings you will need to accumulate for a specific purpose. A school admission today costs around Rs 1.5-2 lakh but what will be the cost when you actually want to take admission after 3 years? Using some math skills or online financial calculators can help you identify the amount you will need for such goals.

To have a financial plan in place, you can hire a good financial planner just like you would hire a travel company for holidays that involve getting a visa, multiple sight-seeing tours, etc.

4. Set out on a holiday (Start implementing your financial plan)
Aren’t there certain ground rules you always follow while travelling? For example, not keeping all the currency and cards in one place, keeping the tickets, passports and medical kit handy.

Investing has its ground rules too:
1. For short-term goals, invest in avenues with similar maturity. For a goal that’s three years away, invest in a three-year maturity deposit.
2. In risky investments such as unit linked insurance plans, shares, equity funds, withdraw 2-3 years before your actual requirement.
- Never dip into your emergency funds
- Loans shouldn't be more than 40-50% of your take-home income.
- Your sum-insured in a life insurance policy must be an amount that is 10
-12 times your annual expenses (12 times of “Can’t live without Expenses”) and covers for your financial goals in the near future.
- Don’t use high interest loans such as personal loans to pay other debts such as credit card debt.

5. Review holiday itinerary if needed (Review your financial plan if needed)
A landslide in the hills may force you to change trekking plans or a riot in a country may force you to change your itinerary.

Likewise, an investment may not deliver desired results because its key managers have changed or the rate of return has come down.

Your life’s purpose or goals may change in the course of life too. A good planning or a good planner will always help you review the same. The reasons for review could be:
- Scheme/investment not doing well as per expected lines
- Is your investment growing enough to fund your goals: You may not realize this now, but if you had put money in a fixed deposit to fund a child’s education, the education fee is more likely to grow at a faster rate than the rate of fixed deposit interest rate. So, for such goals you need to consider investments that cover up for inflation of fees.