Cyclical Expenses - hidden disruptions to your financial plan

We often hear that "goal-based-investing" is an ideal way for an individual to lead a peaceful investing journey. You may find a number of paid or even free versions of "financial plan templates" demonstrating -

1. How one should prepare their ideal financial plan?

2. How to allocate different investment instruments against each of the goals in that plan?

In this article we'll try to highlight some hidden, often overlooked, cyclical expenses one should consider while preparing their financial plan. Towards the end, we'll also try to identify quick action points one can follow to start their own financial plan.

While we plan our goal-based investments for different life stages, we often miss out to consider some timely expense.

These can vary person-to-person. In fact, should we count all of these expenses under "needs" bucket or "wants" bucket can be a debatable topic. But from an average urban Indian household's perspective - we will try to consolidate a list of such expense cycles.

To start with - let's take a look at the present household. What expensive yet can't-live-without type of items do we see? And how much life it has left?

Example 1> Starting with a necessity as basic as - a Gas stove in your kitchen. Its cost ranges from 1500 ₹ all the way till 50-60k ₹ with different features such as 2 burner up to 4 burners, with stand, without stand, metal-body, glass-top, you name it.

Basis the initial price one invested and an aspiration to upgrade - it may get replaced/exchanged in every 5-8 years span. Suppose you bought it 5 years ago and now you feel the need to upgrade it - do note, you are putting an expense of unplanned 5-10k into your expense ledger this month.

Same way, we'll pen down few household items starting from necessity to luxury, categorized based on their average cost.

Few more examples:

• Category A: Cost below 150k

1> Gas stove = 3-10k - every 5-8 years

2> Refrigerator = 15-80k - every 8-10 years

3> Washing machine = 8-80k - every 10-15 years

4> Smart TV = 5-55k - every 5-7 years

5> Smart phone = 10-150k - every 4-6 years

6> Air conditioner = above 25k - every 6-8 years

7> Microwave oven = 10-100k - every 5-10 years

8> Travel bags = 3-30k - every 3-5 years

9> Refresh the wardrobe = 10k+ - every 1-2 years

10> Set of dumbbells / workout kit = 5-15k - every 6-8 years

11> Your favorite musical instrument = 1-10k - may be every 8-10 years

12> The set of physical books by your favorite author/s = 1-3k - every 3-5 years

13> New kitchen crockery set/cooking utensils = 5-25k every 3-5 years.

• Category B: Cost up to 1Mn

1> Bedroom Furniture = 30-230k - every 8-10 years

2> Personal laptop = 45-350k - every 12-15 years

3> Utility car = 300k-900k - every 7-10 years

OR

3> Brand new Luxury car = above 1M - every decade

4> Drawing room furniture = 50-500k - every 10 years

5> Other interior = 200-500k every 7-10 years

6> House renovation = 300k-1Mn every 10-12 years

• Category C: Once in a lifetime goals - Cost above 10Mn

1> An apartment = 7M-20M - every 40-50 years (probably once in a lifetime)

2> That collection of art pieces you always wanted to own = a few hundred thousand- may be once in a lifetime

So on and so forth...

This is a list of "things" that one can aspire to/need to have to live an uninterrupted, 'materialistically fulfilled' life.

Do remember, "Event based" expenses is a different game altogether. E.g. Marriage is an event one has to fund from their own pocket, planning kids - is a (prolonged & expensive) event, any kind of medical situation is an event - you get the idea.

Now that we have identified 'the things' and their expense-cycles, we can do something called funds-provisioning against these cycles.

An illustration with numbers:

Say I bought a utility car - second hand, 6 year old, worth 200k in 2020.

I know that somewhere in 2026-27 I will have to replace it.

I can put an inflation-adjusted goal of 307k in my mid-term bucket. If I want to upgrade it a little - I can find today's price of that upgrade & apply same 6% inflation for next 7 years. (And deduct future resale value of my existing car).

Now same exercise we can run on every single thing we 'already have' and we 'want to have'.

Keep loading them on to our short/mid/long term goal bucket (along with your Life-events goals).

Too much of work, isn't it?

Well, it is! but you need to do it only once and thereafter it's more of minor corrections and adjustments once in a year. You can even seek a professional help if you want to.

The goal of this article is just to setup a baseline thoughts.

Finally, I will conclude this article with an action-points one can consider while preparing their Financial plan:

Understanding cyclical expenses: Recognizing these hidden costs can significantly impact long-term financial planning.

Create a dedicated fund: Setting aside money specifically for cyclical expenses can prevent financial strain. Which is over and above your "Emergency Funds"

Review and adjust your plan regularly: Life changes and economic conditions demands periodic financial planning updates.

Prioritize goals based on financial health: Not all goals are created equal; focus on essential ones first.

Seek professional advice: If overwhelmed, consulting a financial advisor can provide valuable guidance.

Hope this triggers your thoughts in right direction of financial planning. Do let me know your feedback over email.

Happy investing!!

Cyclical Expenses