Financial Goal Planning: How to buy an Audi Car

One of my favourite quotes about goals is by Harvey Mackay: “A dream is just a dream. A goal is a dream with a plan and a deadline.” That just about sums it up!! In this post, let us look at how to define a financial goal with the Audi as a dream car.

It may seem like common sense but it is a fact that not all investors know how to define financial goals. In fact, many incorrectly believe that do not have any!!

"I do not have any specific goal in mind" I have seen this once too often! Everyone needs money and therefore, everyone has a financial goal whether they are aware of it or not! They need to find out a way to handle expenses if they are no longer able to work for a living or simply do not want to, aka retirement planning.  This is everyone's default goal unless they are Richie Rich.

Since everyone has a financial goal by default, investing becomes a whole lot easier if we realise it! Many do not! A goal provides a direction and a sense of purpose. Only when we know the destination can we plan how to get there.

"I want an Audi Car" is just a dream as Mackay says. It is just an arbitrary thought which serves no purpose.

'If I had enough cash, what kind of Audi car would I buy?' Is the first step. It may sound like day dreaming, but is necessary to zero in on the model.

"I want an Audi Q5" is still a dream but is a specific dream.

Next, I need to ask, What is the "enough cash" necessary to buy the Q5 today. About 50 Lakhs will be a reasonable estimate.

"How much do I have now?" For this kind of goal, if 50 Lakh is the target price today, I better have at least 50-60% available with me right now. There are goals like retirement and child's education, 'no cash available now' should not be much of a problem. This is quite contextual.

" I want an Audi Q5 costing about 50 Lakh today, but have only 30 Lakh to spare" Is still a dream but with information about why it is not possible to realise it today.

"I want an Audi Q5 in 5 years" is a dream with a deadline and there is a (financial) goal. However, it neither has a target or a plan attached.

What would be the estimated cost of the Audi Q5 in 5 years? To calculate this, we need an estimate of inflation. Let us say it is about 10%.

So 5L x (1+10%)x (1+10%)x (1+10%)x (1+10%)x (1+10%) = 80.5 Lakh

"80.5 Lakh is necessary to buy an Audi Q5 in 5 years" is a financial goal with a clear target, but with no plan attached.

The next questions to ask are, in addition to the 30L, how much should I invest each month and where should I invest all this money?

At this point, asset allocation and return expectation from each asset class (equity, fixed income) is necessary. More about these steps can be found here: Deciding on asset allocation for a financial goal

For this particular goal, I can allocate Rs. 40,000 a month. The inflation is 10%. I need an annualized return of 10% to get me close to 80.5 Lakhs after 5 years.  Usually this, 10% return is the net portfolio return from all asset classes after taxes (where applicable). In this case, I would like invest the Rs. 30 Laksh that I have and the Rs. 40,000 a month in an equity oriented balanced fund.

This is a risky strategy as 5 years is too short a period. However, this particular goal is a want. Not a need. Therefore, I would like to take some risks. It is just a car. If I cannot buy it in 5, I will wait.

"80.5 Lakh is necessary to buy an Audi Q5 in 5 years. In order to acheive this, Rs. 30 Lakhs lump sum and Rs. 40,000 a month will be invested with an expectation of 10% annualized return"

Now we have a financial goal with a clear target and  a plan in place. We start investing, review progress once a year, make course corrections* if necessary and hope for the best

* Course corrections need not have a negative connotation. A spectacular year could mean, we shift from money from the balanced fund to a debt fund or an FD etc.

Pic Credit: Peter Davies

At the cost of sounding contrived, is the Audi logo a perfect fit for financial goal planning?!

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10 thoughts on “Financial Goal Planning: How to buy an Audi Car

  1. Rajesh Soni

    Why not just consider buying a pre-owned Audi. A 3-4 year old "well-maintained" single owner car, should be available at 50 - 60% of the total "on-road" cost of a new car!

    1. Viren

      @Rajesh: I think, the example (and cost) of Audi is just an example of converting dreams into goals (financial).

  2. Ayyappan

    Thanks Pattu Sir, Nice Article. Now I can understand the difference between dream and Goal (with target & Plan)


  3. AVM

    I think the Audi Q5 was just an example of a goal.

    The same reasoning will apply to a goal of a family trip to a foreign location in 3 yrs time. Foreign travel definitely has inflation year on year.


Do let us know what you think about the article