When you plan a road journey, you make assumptions about a set of things: road conditions, weather, the car you will be driving, the time you will start, the breaks you will take etc.
Similarly, whenever you create a financial plan for yourself, you will need to make a set of assumptions. These will help you figure out how much and how long it will take to reach your financial goals.
For example, if you want to save up for your children’s education, you will need to answer a few questions for yourself.
Question #1: If college education costs Rs 10 Lakhs today, how much would it cost in the time your child grows up – say 15 years?
Question #2: Where should you invest? What return should you plan for?
Question #3: How much would you need to invest to get to your goal amount?
You can replace education in the above situation with anything: a home, a holiday, an MBA degree, or retirement nest egg.
Here are some common assumptions that will help you answer these questions:
Important reminder: Just as you might discover the road condition to be different once you start your journey, some of these assumptions will change over time and therefore you will need to adjust your plan accordingly.