Originally published at: How financial planning can help you reach self-actualization > Jupiter
Hypothesis: Money buys us things
Corollary: Money buys us the privilege to chase things other than money
If you’ve watched the Netflix show Maniac, chances are that you’ll read that in Justin Theroux’s low toned voice. No, Justin Theroux didn’t talk about money and its role in our lives, but eight months into the lockdown and we at Jupiter have gotten increasingly introspective about it. After all, we are building tools to help you navigate your equation with money, and eventually with yourself.
Think about the quest to attain ‘self-actualization’.
When you’re at the bottom of this pyramid, most questions you’re going to ask about yourself are going to end with ‘money’. To be able to ask yourself questions like ‘Who am I if money doesn’t motivate my choices?’ or ‘What do I really want if I have everything I need?’, you need to be able to build a life that doesn’t revolve around thinking about money woes right from the time you’re up brushing your teeth.
If this seems like one of those moments where your friend has gone too far with their philosophical train of thought (and you, the practical friend has to tell them to can it), it is. We’re pulling ourselves back a little to think about a practical answer to this profound soliloquy. The answer seems to jump out quite plainly: Financial planning. Before you think this is an insincere segue into a rather hack-ey matter, hear us out.
This isn’t one of those magical ‘Get rich before you retire’ articles that claim that your financial plan will ensure that you end up living a life straight out of a ‘Dream home in the hills’ catalog. It’s a practical guide to the various ways in which you can start thinking about financial planning, and have it be less daunting than the first time you had to learn C++ in computer class (fine maybe that’s just me).
So we’re going to start with the good news: It’s 2020. Ehm, no we’re not advocating for this catastrophe of a year. The good news is that it’s 2020 so you’re basically living at the peak of modern banking innovation. This means you have more tools at your disposal to execute a solid financial plan than your parents did to make their garden look better.
Modern banking will help you get there faster
Let’s circle back to our philosophical deliberation. The journey to attain self-actualization, or in fact any form of self-improvement starts with self-awareness. This is you gathering data about yourself as a person, your behavioral mechanisms, coping habits, traumas, etc. Without this knowledge, it’s impossible to proceed to the next step. Quite, in the same way, the first step to planning your finances is collating all your data. You can do it on a good ol’ spreadsheet.
Simply throw in everything you know about your finances, such as your income and expenditure, savings, investments, debts, etc. Remember, this is pure data. You don’t have to do any thinking, just open up your banking apps and dump the numbers on a sheet.
Once you have this data in front of you, the rest is pretty straightforward. You split your financial planning into three buckets:
1. Spend management
You know this thing where the Japanese have kinda cute names for everything, and that makes it much more fun to read about? Turns out they have one for budgeting too, it’s called Kakeibo. Kakeibo is the concept of keeping a ‘budgeting journal’ (ties in all too well with this whole self-actualization theme we have going on here). If you’re reading this and going “Who keeps a written journal in 2020?!” then we’re right with you on that one. All we want to do is extract the core philosophy from this Japanese method which is ‘saving money is about spending money well.’ Damn right it is.
It might be worth considering the percentage of your monthly income you spend, and how much of that is spent on different expense buckets. Here’s how we’d classify those:
Non-discretionary expenses– such as bills and fixed monthly payments. These include rent, EMIs, grocery, mobile bills, essentials like water and electricity charges, daily commute, etc. We suggest optimizing these with a simple trick: Cut down on daily or monthly expenses which could lead to long-term gains. Like canceling subscriptions that you don’t use actively, getting a cheaper DTH plan, or carpooling to work instead of driving alone.
Discretionary expenses– could range from impulse-buying that indoor plant because you were targeted with an ad on Instagram, to hanging out with your mates at the newest cafe in town. This bucket includes shopping, entertainment, eating out, etc. Here’s the trick with managing these spends; the categories don’t matter as long it stays within your ‘spending limit’ i.e the amount you can spend after you’ve planned for your savings.
Now here’s a handy tip (and a third spending bucket you should actually account for): Set aside at least 20% of your monthly income for your savings. Remember, this is only the minimum amount you should be saving, and you can look to optimize this as you go. If you wish to know how you’re saving compared to your peers, you can use this calculator.
To summarize, we’d say that if your spending exceeds 80% of your monthly income then you might need to give yourself an intervention.
To manage your spending, we suggest using a money manager i.e any app feature that gives you an overview of your money-in and money-out, just another sweet perk of modern-day digital banking.
2. Savings and investments goals
When Maslow made this hierarchy of needs, we guess it was clear that it’s hard to move to the top if you haven’t covered the needs at the bottom. That’s pretty much the same way it works for your finances, which is why it’s important that you address spend management and essential savings before diving into goals and investments.
Must-have goals for physiological and safety needs –
These include emergency funds (which should consist of at least six months of your monthly income), insurance, and retirement savings goals. We’d like to think of these as goals you must plan to lead a life that could be fairly insulated against unforeseen circumstances.
Now you might think planning for retirement in your twenties is a bit of a stretch when you’ve barely figured out what you’re going to buy for lunch the next day. We get it. That’s why our team came up with this fun planner that can help you figure if rounding up as little as 2000 rupees a month, can give you 21 lacs at retirement. If you’re rolling your eyes at the idea or intrigued about what this looks like then you can have a look at it here.
When it comes to insurance, you should definitely be looking into health insurance and understand if you have enough coverage for yourself and your family. Here’s a simple calculator to help you figure it out. It uses a few parameters like your dependents, income, lifestyle choices to check if your current cover is adequate for you and your family.
Self-goals for love, and belonging needs
These include all your short, medium, and long term personal goals like taking a trip, studying a course, or buying a house. We suggest using a goal-based savings system where you set aside a sum of money every month, ring-fenced from your main account.
Growth goals for esteem needs
These include your investments. Warren Buffet said that investing is “The process of laying out money now to receive more money in the future”. This is also a way to take care of your esteem needs, by creating more wealth. The journey starts off with analyzing your risk appetite i.e how much money you can afford to lose. While fully-automated Robo advisory platforms and modern banking miracles like auto-investing aren’t very far away, for now, we suggest getting a relationship manager or reading up about investing in a diverse portfolio i.e making sure you don’t put all your eggs in one basket (turns out there are things that are more important than your Instagram portfolio hehe).
3. Debt planning
To be able to plan your finances, it’s important to keep debt under control and pay your dues back on time to maintain a good credit score that can help you for future loans. Make sure you don’t borrow money for things you don’t need, and that your EMIs stay well under 40% of your monthly income. We suggest setting up autopay to make sure you’re on track with these payments.
So it turns out modern banking can actually help you reach your full potential. Huh, who’d have thought?
Hop aboard the self-actualization train here.