In financial planning, you start at the end – 06/29/2023 – From Grain to Grain

Most individuals do not reach their financial goals. For example, we don’t buy the property we want or we don’t reach the long-awaited retirement income. Frustration comes only in the future when there is no more time to correct mistakes. We blame a number of factors, but overlook the real reason. The fault is in the way of planning.

Usually, when we think about investments, we behave as if the goal always fits into what we do today.

For example, we invest any amount in a pension plan and we think that this is enough to retire as we would like. We invest any amount in the savings account and dream that the purchase of the desired property is close. Finally, we end up paying dearly in financing and living worse in retirement.

These attitudes are equivalent to walking down the street and believing that at some point you will find a R$ 200 bill on the ground. This can even happen, but it will be by luck.

Just as, too, it will be luck that you will retire with the desired income or acquire the property you want if you only do what you can.

Therefore, to avoid frustration, the best way is to plan. But this planning starts at the end.

For example, in the case of retirement, you must first choose the income you want to enjoy and the moment you want to retire. With these factors and the expected return during retirement, you will estimate how much financial equity you need to have when you retire.

Understand, you shouldn’t think about how much you can save to retire, but what amount is necessary to save and what the minimum return needs to be to reach the necessary amount.

Thus, if you intend to retire at the age of 65 and with an income of R$ 10,000 per month, you must have an invested amount of R$ 2.1 million at the time of retirement. I considered this income in addition to the INSS, an income of IPCA+4% per year during retirement and a benefit period of 30 years.

Your plan now is to calculate how much you need to save. In this case, it depends on your age. For example, if you are 30 years old and have no savings, you should invest R$2,300 per month. For the calculation, I considered a minimum return of IPCA+4% per year.

Dreaming of a goal of retiring with R$10,000 a month and saving what you can will not lead you to it.

If in this example, you invested only what you could monthly and this amount was only R$ 500, you would need to have an income of IPCA+10.9% per year to reach the same goal. Therefore, the achievement of the objective would be very unlikely.

Perhaps, investing the necessary sum monthly is beyond your means. In this case, your goal must be revised so that there is no frustration.

So, calculate what your target value will be in the future. Then trace your way back to where you are. In this way, you will know exactly your chances of reaching the goal.

Tomorrow, I will write about three ways for you to buy a property and which one I prefer.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me via email.

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