Financial Planning
Saving without a purpose rarely lasts. Money with no job attached to it gets spent, usually on something reasonable, and the saving starts again from nothing the following month.
A financial goal fixes that. It turns "I should save more" into a specific amount, by a specific date, for a specific reason. That is a far easier thing to stick to, and a far easier thing to say no to other spending for.
This article is about choosing goals, costing them properly, putting them in order and adjusting them when life changes. It assumes you have already looked at where your money stands today. If you have not, do that first.
People often treat goal-setting as an imaginative exercise. For most households it is not. Look at the next fifteen years and much of the spending is already visible.
Not all of these will apply to you, but several will. Children, if you have them, will need schooling and in practice private tuition alongside it. There may be a wedding in the family. Parents will grow older and need support, and probably medical care. A house will need to be built, bought or finished. Somebody may go abroad to work or study. And eventually your own income from employment will stop.
None of that is speculative. The question is not whether these costs are coming. It is whether you will meet them from savings you built deliberately, or from borrowing arranged in a hurry.
That is the real purpose of setting goals. Not ambition. Preparation.
So start by listing what you already know is coming, with rough dates. Then add the things you actually want, which matter too. A plan made only of obligations is one nobody sticks to.
A goal you cannot act on is a wish. To be usable, a goal needs four things.
A specific outcome. Not "save for my daughter's education" but "pay for three years of her degree course". The first cannot be costed. The second can.
A cost. Find out roughly what the thing costs today. Ask people who have recently done it. Ask the institution directly. An approximate figure you can work with beats an exact figure you never obtain.
A date. Even an approximate year converts a goal into a monthly amount. Without a date there is no way to know whether you are on track or behind.
A rank. You will not be able to fund everything at once. Deciding the order now, calmly, is far better than deciding it later under pressure.
Write them down. Goals held only in your head quietly rearrange themselves to match whatever you just spent money on.
If more than one person earns or spends in your household, set the goals together. This sounds obvious and is frequently skipped. Where one person manages the money and the others are not part of the decision, goals tend to be quietly undermined rather than openly disagreed with, and the saving stops without anyone saying so. Agreement reached at the start is worth more than a better plan imposed on people who were not asked.
Here is where plans made in Sri Lanka often come apart.
If you cost a goal today and then save that exact amount for eight years, you will almost certainly fall short. Prices will have moved. Households that lived through the recent crisis watched costs rise faster than anyone had planned for, and while conditions have been calmer since, prices have picked up again.
Three practical responses.
Cost your goals in today's money, and re-cost them every year. Treat the figure as an estimate with a shelf life rather than a fixed target. Checking once a year takes a few minutes and prevents an unpleasant discovery later.
Aim slightly high. If a goal looks like it needs a certain amount, plan for somewhat more. Arriving early with a surplus is a good problem.
Pay attention to what your savings actually earn. Money set aside for a distant goal and left somewhere paying very little will lose purchasing power while it sits there. The balance grows and buys less. Compare what you earn against how fast prices are rising, not against zero.
This deserves its own section, because it is the mistake that does the most damage and it is specific to countries like ours.
Some goals are not priced in rupees. A foreign degree, an overseas medical procedure, an international school, migration costs, or a professional qualification awarded abroad are all priced in another currency, whatever currency you happen to pay them in.
If you save rupees against a foreign currency cost, and the rupee weakens before you pay, your savings buy less of what you needed. You can do everything right, hit your rupee target exactly, and still fall short. Families discovered this during the recent crisis, when parents with children already studying abroad found that money they had carefully set aside no longer covered the fees.
If you have a goal like this:
Almost nobody can fund every goal at once. Ranking them is the whole exercise.
A workable order for most households:
If you are self-employed, run a business, or your income moves with the season or the weather, put more weight on the first item. An irregular income needs a larger cushion before any other goal is sensible.
Some goals appear again and again here, and each has a trap worth knowing about.
Land and a house. Buying land and building in stages, over several years, is a normal and sensible approach when construction costs are high. Two cautions. Confirm that the title is clear before any money moves, and get proper advice on it. And remember that a half-finished house is not an asset you can easily sell or borrow against, so plan the stages so you are never stranded between them for long.
A wedding. Expectations here are considerable, and the cost of meeting them has risen sharply. It is worth deciding early, as a family, what the celebration is actually for and what it will cost, rather than agreeing to a series of individual decisions that add up to a figure nobody chose. Increasing numbers of couples are choosing to spend less on the day and more on what follows it. That is a legitimate choice, not a failure to do things properly.
Children's education. State education is free, but the real cost to households is not. Private tuition has become close to unavoidable, and it is a recurring monthly cost rather than a one-off. If the goal extends to an international school or a foreign university, read the section on foreign currency goals again, carefully.
Supporting parents. Many households support ageing parents and are also saving for their own children. Both are real, and they compete. Deciding what you can sustain is kinder to everyone than promising more than you can maintain and then withdrawing it later.
Going abroad to work. Migration is itself a financial goal, with real upfront costs including agency fees, documents and travel. Two questions matter. Are the fees being charged legitimate, and is the agent registered? And what is the money for once it starts arriving? Years of work abroad funding only day-to-day spending leaves a household no better off than when it started.
Retirement. What you need to do here depends entirely on how you work. In the private sector you will have EPF and ETF building in the background. As a government employee you have a pension. If you are self-employed or working informally, you may have neither, and anything you want in retirement you will have to build yourself. That last case is common, and it makes retirement an urgent goal rather than a distant one.
Match the place you keep the money to when you need it.
For money needed within a year, the priority is access and safety, not return. For money needed in several years, it makes sense to look for a better return, accepting that some options can fall in value as well as rise.
Buying gold jewellery gradually is one of the oldest ways households here save towards a goal, particularly a wedding, and it is often how women in a household build savings of their own. It deserves an honest assessment rather than either dismissal or enthusiasm.
In its favour: gold has generally held its value when the rupee has weakened, it can be pledged quickly in an emergency, and it carries a cultural value that a bank balance does not.
Against: you pay making charges you will not recover on resale, so a portion of every purchase is spent rather than saved. The price moves down as well as up. It has to be stored securely. And gold bought for a wedding is really a purchase for that event, not a reserve you can also count on for something else. Counting it twice is a common and expensive mistake.
If saving in gold suits your household, treat it as one part of your savings rather than the whole of it, and be clear with yourself about which pieces are savings and which are already committed.
Keep goal money at an institution licensed by the Central Bank of Sri Lanka, and be aware that deposit protection applies only up to a limit for each depositor at each institution. Check the current limit before placing a large amount.
Be careful about relying on informal arrangements to fund a dated goal. A seettu works only as long as every member keeps paying and the organiser is trustworthy, and there is no regulator to appeal to if it collapses. It is a poor foundation for a commitment you cannot move.
And avoid funding a goal by pawning gold you intend to keep. If the advance is not repaid, the jewellery is sold. Meeting one goal by putting a family asset at risk is rarely a good exchange.
A goal that never changes is not disciplined, it is out of date.
Revisit your goals when your income changes materially, when your family changes, when someone leaves to work abroad or returns, after a serious illness, and after any large financial commitment. Once a year is sensible in any case.
Changing a goal is not failure. Abandoning the practice of setting them is.
If you have set goals before and not kept to them, the problem is usually that they were too many, too vague or too ambitious at the start. Fewer, smaller and clearer works considerably better than an impressive plan you stop following in the third month.
Goals tell you what your money is for. They do not, by themselves, free up any money.
If you now know what you are saving for but cannot see where the money would come from, the next article in this series covers building and keeping a budget. That is the tool that turns a goal into a monthly amount you actually set aside.
If you have not yet worked out where you stand, go back to the financial health check first. Goals set without knowing your current position tend to be either unreachable or far too modest.
If debt repayments are consuming everything, deal with that before setting savings goals. The material on managing cash flow is the better place to start.
If you have set goals before and not kept them, the article on recovering from past financial mistakes is more useful to you than another list of goals.
If you have chosen a specific goal, there is detailed material later in the series on housing, children's education, weddings, working abroad and retirement.
This article is general information about personal money management. It is not financial, investment, tax or legal advice, and it does not take account of your personal circumstances. Product terms, interest rates, tax rules and regulatory limits change. Confirm current details with the relevant institution or regulator, and consider taking licensed professional advice before making a significant financial decision.