Why are you saving money? Life..goals

Now that you have determined your income levels and have an idea of how much you are saving, it’s time to determine what you are saving your money for.

Everybody wants to be 'rich', but very few have taken the time to think through what it truly means to be rich and what they need to do to achieve financial freedom.

Meet Arvind, a 30-year-old marketing executive. When asked why he's saving money, he says, "To be wealthy someday." However, when pressed for clarification on what that means, he remains unclear. Does he want to retire at 50? Buy a vacation home? Start a business? Without specific goals, his savings lack direction.

Circumstances and needs are constantly changing. A sound financial situation today does not necessarily foretell an equally rosy future.

• A loss of income, even temporary, can deplete your savings or leave you in debt.

Like Rajiv, a 40-year-old sales manager who lost his job during a company restructuring. Without an adequate emergency fund, he had to use his retirement savings to cover six months of unemployment, which set back his retirement plans by years.

• An uninsured loss can wipe out your accumulated wealth.

Consider Meera, who lacked adequate health insurance when she required emergency surgery. The ₹5 lakh hospital bill wiped out her entire savings, which she had been accumulating for a house down payment.

• Insufficient savings can force you into a more limited lifestyle after retirement.

Consider Mr. Desai, who retired with what he thought were sufficient funds (₹50 lacs), only to discover that, due to inflation and rising healthcare costs, his savings would only last 8 years, rather than the 20+ years he needed.

• Frequent or unplanned borrowings can result in a negative balance, creating a debt that will be owed in the future.

Like Sanjay, who habitually uses credit cards for impulsive purchases, accumulating ₹3 lacs in high-interest debt that he struggles to pay off with his monthly income.

All this, combined with changes in your life cycle, needs, and/or external economic changes, can make you and your future generations financially vulnerable.

You need to plan and manage your current and future income to meet your current and future needs and wants. These are also known as your goals or dreams.

People who write their goals are much more likely to achieve them. Sit down by yourself or with loved ones and try to imagine your future. Consider what drives you in your life and how that has changed over the years.

Once you have a timeline for your goals, you will need to estimate the amount of money required to meet them.

A portion of your current savings will need to be invested appropriately so that it grows to meet the cost of your future goals.

Make a list of all key expenses you foresee in the future. This will give you an idea of how to invest your savings.