Reply on 5 years Investment plan for House , wedding and Travel, how and where to Invest

Hello everyone,

Welcome to our new blog. A few days ago, one of our readers asked us a question: do you have a plan for 5 years that, if implemented, would allow us to achieve all our goals, such as buying a house, having a wedding, and travelling, within that period?

Why he wants to invest and save

During my conversation with that reader, I found out that their salary is $65,000. I asked them about their various expenses. In this blog, we will discuss this 5-year plan based on their salary as the foundation.

So, let’s create a 5-year goal or investment plan through which we can achieve a house, a wedding, and an international trip. Let’s get into the calculations. First, we need to divide our savings into four parts:

1. House
2. Wedding
3. Personal
4. Long-term

Our conversation on Investment

In my conversation with the reader, we tried to figure out their expenses—how much they spend and where, as well as their income sources and whether they have any investments. We found out that the reader’s salary is $55000, and they also have investments that earn them $10,000 in monthly interest.so total became $65000

As for expenses, $900 is deducted for their PF, their monthly house expenses are around $25000, and they have a vehicle EMI of $3,000. Additionally, their credit card bill comes to around $500 per month.

After that, the reader mentioned that they and their mother have a linked health insurance policy. The reader is 26 years old, and their mother is in her mid-fifties. The reader then shared that they want a fully furnished house worth up to $3,000,000. Additionally, they mentioned that they want to save up to $200,000 for their wedding.

Reader Statement

Now, if we come to the plan, my first suggestion would be to get a separate health insurance plan. This will ensure continuity, and it will only cost about 2-4% more compared to the merged plan.

• Now, if we talk about the second suggestion, I always recommend getting life insurance. Although the reader is young, they should consider starting a life insurance plan within 2-4 years. If they start before turning 30, they will get more benefits at a lower cost.

• I don’t consider life or term insurance as an investment but rather as a form of security for the family. A term insurance plan of ₹1 crore (around $100,000) would be ideal, with an annual premium of approximately $10,000. If they continue this plan until the age of 30, it will provide complete security for them and their entire family.

• Now, coming to the third suggestion, your monthly expenses are around $25,000, which are essential, and your current bank balance is approximately $5,000. Ideally, you should have enough in your bank account to cover 3-6 months of expenses.

This is crucial to ensure you can survive in case of a job loss or any unforeseen situation in the future. Therefore, you should save 3x to 6x your monthly expenses over the next 2-3 months. Once this is done, we can then start focusing on investments.

Now, let’s move on to our 5-year investment plan, where we have set the following goals to invest

1. House: While it’s important to buy the house with full payment, we will aim to make the maximum possible down payment.
2. Wedding: We will try to cover the entire wedding expenses comfortably.
3. Current Lifestyle: Ensure that we can continue to enjoy the current lifestyle and afford any travel or other leisure expenses.
4. Long-term Investment: Finally, focus on a long-term investment plan to achieve good returns.
5. Saving $3,000,000 for a house within 5 years while maintaining a good lifestyle is quite challenging. So, we will aim to save 50% of the amount for the down payment.
6. Assuming the real estate market grows at 8% over the coming years, the house you want to purchase will cost $3,200,000. This means you will need to save $1,600,000 for the down payment.
7. To achieve all your goals, you will need to save and invest $40,000 monthly.
8. First, you should set aside $5,000 each month to invest specifically for the wedding. Similarly, $2,500 should be set aside for personal use and enjoyment. Another $20,000 should be allocated for your long-term goals.
9. The remaining $12,500 should be set aside for long-term investments.
10. Now, let’s discuss where to invest. The $20,000 allocated for the house and the $5,000 for the wedding should be invested in low-risk areas to ensure growth over the next 5 years.
11. The best option for this is the stock market, where you can invest in large-cap companies. Additionally, you can expect an average return of 12%. After 5 years, you will be able to cover approximately 60% of your home’s down payment and save around $400,000 for your wedding.
12. The $2,500 monthly savings for personal use should not be invested but kept aside as savings, so you can use it after a year or whenever required.
13. The $12,500 allocated for long-term investments should be consistently invested for the next 25 years. Split this amount evenly—50% into mid-cap funds and the other 50% into small-cap funds. This investment is expected to yield a minimum return of 20%, and after 25 years, your investment will grow to approximately $115,000,000.

Conclusion on how to invest

Achieving financial goals such as buying a house, funding a wedding, and maintaining a desirable lifestyle, all while securing a long-term investment portfolio, may seem daunting. However, with strategic planning, disciplined saving, and wise investing, it is possible to turn these goals into reality.

The first step in this journey is to ensure that basic financial security is in place. Separating health insurance policies for yourself and your mother is a critical step. This ensures continuity of coverage, particularly as your mother ages, and provides peace of mind with minimal additional cost. Additionally, life insurance should be considered as a safeguard for your family. Starting a term insurance plan early in life ensures lower premiums and greater financial security in the long run. These measures are not investments but essential layers of protection for unforeseen circumstances.

Next, building an emergency fund equivalent to 3-6 months of expenses is paramount. This buffer provides financial stability in case of unexpected job loss or emergencies. With monthly expenses around $25,000 and a current balance of only $5,000, prioritizing this fund in the first few months is vital before delving into larger investment goals.

For the 5-year plan, the focus shifts to structured savings and investments. The goal is to accumulate $1,600,000 for a house down payment, fund a $200,000 wedding, maintain a comfortable lifestyle, and build a robust long-term investment portfolio. To achieve this, saving and investing $40,000 monthly is key. Allocating $5,000 for wedding-related investments, $2,500 for personal use, $20,000 for short-term goals like the house, and $12,500 for long-term investments creates a clear roadmap.

Investments for short-term goals, like the house and wedding, should prioritize low-risk options. Large-cap stocks, with an expected return of 12% annually, are ideal for this purpose. Over 5 years, this approach can generate significant returns, allowing you to save approximately 60% of the house down payment and cover the wedding expenses.

For long-term investments, allocating $12,500 monthly into a balanced portfolio of mid-cap and small-cap funds is a prudent choice. With a conservative estimate of 20% annual returns over 25 years, this strategy could grow into a substantial corpus, providing financial freedom and security for future aspirations.

While the journey requires discipline, the payoff is immense. Regular tracking of expenses, adhering to the investment plan, and being prepared for market fluctuations will be crucial. Flexibility in adjusting goals and strategies based on life events or economic changes is also important.

In conclusion, this 5-year plan not only sets the foundation for achieving immediate goals but also lays the groundwork for a secure financial future. By prioritizing financial stability, making informed investment choices, and maintaining a disciplined approach, you can turn your vision of owning a home, celebrating a dream wedding, and enjoying life’s experiences into a reality. All the while, your long-term investments will continue to grow, securing your family’s financial well-being for decades to come. also read