6 Essential Finance Tools | Financial Goal Setting : How to Plan Your Finance?

Summary

In this video, the importance of financial planning and the impact of inflation on various expenses, such as milk prices, education, and property, is discussed. Using future value calculators, the script explores how investments and costs will grow over time, helping individuals understand how much they need to save for long-term goals. Examples are provided, like the rising cost of education and property, and tools such as SIP and CAGR calculators are introduced to track and plan for these future financial requirements. The video aims to empower viewers to use these tools for better financial decision-making and planning.

Takeaways

• 😀 The cost of a half-liter milk packet today is ₹28, but what will it cost after 15 years? Try guessing and leave your answers in the comments.
• 😀 Education costs are rising significantly. For example, studying engineering today can cost over ₹10 lakh, and this amount will keep increasing with inflation.
• 😀 The future value calculator helps you determine the increased cost of something over time, such as education or property, by factoring in inflation.
• 😀 Assuming 10% education inflation, the cost of engineering studies will be around ₹50 lakh after 17 years, compared to ₹10 lakh today.
• 😀 Property prices also rise with inflation. For example, if a property today costs ₹50 lakh, it might cost ₹86 lakh after 8 years assuming a 7% annual appreciation rate.
• 😀 The SIP (Systematic Investment Plan) calculator can help estimate how much a monthly investment will grow over time, such as for a child’s education or buying property.
• 😀 Investing ₹5 lakh with a 12% return for 17 years could accumulate around ₹37 lakh, but it may still fall short of the ₹50 lakh needed for a child's education in the future.
• 😀 Inflation plays a crucial role in calculating the future value of investments. The value of ₹1 crore today will be significantly lower in 2041 if inflation is considered.
• 😀 The Compound Annual Growth Rate (CAGR) calculator helps evaluate the return on investment, such as understanding how a property’s value has appreciated over time.
• 😀 Understanding IRR (Internal Rate of Return) is important for investments where the amount invested varies over time, such as monthly SIP contributions or irregular investments.
• 😀 It is essential to use various financial calculators (future value, SIP, CAGR, IRR) to make informed decisions about investments and ensure you are on track to meet your financial goals.

Q & A

What is the current cost of a half-liter milk packet, and how is it expected to change over the next 15 years?

The current cost of a half-liter milk packet is ₹28. Based on a 7% inflation rate, the price of the same packet is expected to rise significantly over the next 15 years.

How can the future value of an education expense, like engineering studies, be calculated?

To calculate the future value of education expenses, you can use a future value calculator by entering the present cost and the number of years until the expense is incurred. For example, if the current cost of studying engineering is ₹10 lakh, you can calculate its future cost after 17 years by factoring in an estimated inflation rate for education.

How does inflation impact the future value of assets like property?

Inflation directly affects the future value of assets such as property. For example, if a property is expected to appreciate at an average rate of 7% annually, its value will increase over time, and the amount needed to purchase a similar property in the future will be significantly higher than the current price.

What is the purpose of using a future value calculator for financial goals?

A future value calculator helps estimate the value of an asset or investment in the future based on assumptions like inflation rates and growth rates. This is useful for planning financial goals, such as saving for education, purchasing property, or other major life expenses.

How can a ₹5 lakh investment grow over 17 years if invested in an index fund with a 12% return?

A ₹5 lakh investment in an index fund with a 12% return could potentially grow to ₹37 lakh over 17 years, assuming the returns compound annually. This illustrates how investing early can significantly increase your wealth over time.

What is the SIP (Systematic Investment Plan) calculator used for?

The SIP calculator helps estimate how much an investment will grow over time if you invest a fixed amount regularly. For instance, investing ₹10,000 per month in an index fund with a 12% return for 17 years can grow to over ₹1 crore, demonstrating the power of regular, disciplined investing.

Why is it important to adjust for inflation when planning for future financial needs?

Adjusting for inflation is crucial because the value of money decreases over time. A certain amount of money today may not have the same purchasing power in the future. Therefore, adjusting for inflation ensures that the estimated future value reflects the true cost of goods and services.

How does the CAGR (Compound Annual Growth Rate) calculator work, and what is it used for?

The CAGR calculator determines the average annual growth rate of an investment or asset over a specific period. It is useful for evaluating the growth of investments like property or stocks, helping you understand the return on investment over a given time frame.

How can you calculate the actual return on irregular investments with varying amounts over time?

For irregular investments with varying amounts over time, the IRR (Internal Rate of Return) calculator can be used. By entering the amounts invested and withdrawn at different times, the IRR calculator helps determine the overall rate of return, even when contributions are not consistent.

What is the significance of knowing the inflation-adjusted value of future returns?

Knowing the inflation-adjusted value of future returns is important because it provides a more accurate picture of the real value of your investments. For example, ₹1 crore today might not have the same purchasing power in 15 or 20 years, so understanding its future value after adjusting for inflation helps you plan more effectively.