Is that a Goal or an Expense?

“I am planning to go for a vacation every year with my family, starting from this year. Create a financial plan for that and let me know how much I should invest for the same?” – we often hear this from clients. Another similar request could be – “My daughter recently got admitted in this new International School. Expenses for the same would start from Rs. 1 lakh this year and so on for the coming years with inflation adjustments. Make sure that you include this in my financial plan.” It really feels good when investors come forward and ask such questions or make such requests. This clearly implies that they are taking their personal finances seriously. But this begs another question – Can these be termed as financial goals? If a goal is to be achieved every year, including the current year or the next year – can that be planned then? The answer is – NO. These are part of your cash-flow and budgeting. You must set aside an equivalent monthly amount from your regular income to meet such expenses. If that expense is not immediate, you can park that money in some liquid and safe investment for the next few months – that’s it. So, such cash outgo is part of your recurring expenses and cannot be or should not be termed as financial goals. These recurring expenses need not to remain constant over the years and may rise – so is your income. Remember, almost all recurring expenses are subject to inflation except a few like life insurance premium payments etc. Is not retirement goal similar? There, we are also supposed to spend a certain amount every year – inflation adjusted. But retirement expenses are different from annual vacations or school expenses for two reasons – first, because retirement expenses are not getting started immediately and second, there will be no regular income coming then. That requires some serious planning, no doubt. But if you are planning a Europe tour or world tour after few years, then that is surely a financial goal to be planned.