Last Updated on December 28, 2021 at 6:38 pm
When it comes to money management, success can be measured in many ways. If it is personal finance, then it makes sense that the milestones be personal. Here are a few personal finance milestones that can help you gauge “where you stand today” on the road to wealth. Before we begin did you get a chance to read the previous post: How to reduce risk in an investment portfolio
The following assumes that you have
- adequate life insurance
- medical cover
- identified your goals, chalked up a strategy for each
- started investing
The milestones are in no particular order as we cannot say which arrives first.
0 Think rich to be rich.
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1 Your Liquid Networth exceeds Your Life Insurance Sum
For example, if you are insured for er … one crore and your net worth that can be immediately liquidated – stocks, bonds, gold, funds etc. exceed one crore.
No biggie. Should be possible in a decade with some systematic investing,
2 The investment amount required decreases!
We need to re-do the goal planning calculations each year with updated portfolio values and goal estimates. As your portfolio grows, at some point, you will notice that the investment amount needed from this point forward is lower than what you calculated last year and/or lower than the amount you are actually investing.
For example, if you are investing 10,000 per month for a goal, increasing say at the rate of 10% a year and if the revised calculation says, you only need to invest 8,000 a year (increasing at 10%), then that is a huge relief!
3 Your Equity holdings exceed your term insurance sum
With luck – the residue of discipline, your equity holdings will have a value greater than your life cover. Sure, it may not last, but it is a great feeling while it does. Give it time. It is possible.
4 Your Retirement Planning can be set on auto-pilot
This is related to (2). As your portfolio grows and the investment amount decreases, there would come a time when all you need to do is – nothing. Your current equity holdings and your EPF monthly deduction should be enough for your to retire normally. Give it a little more time, and even that EPF deduction will not be necessary (although it cannot be stopped).
5 You can live off Your Net Worth for a certain number of years
As mentioned here, Review Your Financial Freedom Portfolio in Seven Easy Steps, look out for two numbers measured in years.
The no of years you can generate an inflation-protected income if you were to retire today. This will soon be 5Y, then 10Y, then 15Y etc.
The no of years you can generate an inflation-protected income if you were to retire as planned (say 55 or 60). This will soon be 5Y, then 10Y, then 15Y etc.
These are the first steps towards financial independence. Read more: E-book: How to retire early in India.
If you want a simpler thumb rule then for zero real return (return from investment = inflation) then if your retirement corpus = 25 times your current annual expenses (25x) then you can life off that amount for 25 years. So 5x will be your first mini-milestone. This is suitable for those who wish to quit salaried jobs to create startups. Then 10x then 15x –> 20x —>30x. Anything about 30x with at least 15 years worth of money in fixed income would be pretty awesome.
6 The current cost of an undergraduate education matches the current value of your child education portfolio
If your kid is years from 12th standard, then you can pat yourself on the back.
You can make up milestones like these and watch your net worth grow. All it takes is discipline and time.