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I am young, unmarried. Where shall I invest? |
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At this stage of your life, your expenses can be kept limited and you can take the maximum risk. Risk here does not mean any uncalculated risk thereby totally risking your capital. We here refer to calculated risk i.e. investing in risk assets through proper guidance and channels for the long term. The risk would be short term risk only, no risk in the long term. E.g. Investing in a single share of a company is a big risk because if the company fails even when the stock market is booming you would not make money. Suzlon and Unitech were 450rs. In 2007 end and were darlings of stock market. In 3 years currently they stand at 50 and 30 rs. Respectively.(As on 6th august 2011). In the same period a diversified fund of any good AMC would be giving decent returns. Go for calculated risk i.e. just because someone says that you are young you can invest in shares, do not go for shares, go for equity mutual funds in such case taking guidance from your advisor.
In case you have just started earning, your aspirations for purchase will be higher, as this is the first money which is actually your own money which you can spend on any personal life style enhancers you want. This is where you need to exercise restraint. Do not over indulge in luxury items. Spend on only those items which are necessary for your personal well-being. This is the time when you can start accumulating small amounts of money which will help build up your wealth. Step wise responsibilities coming around the corner would be: Rental in case of change of residence; expenses during and after marriage; increase in monthly expenses after marriage (in case spouse is non-working) from the same income; building up the amount of downpayment to buy your own house and thereafter EMI burden will increase.
In short from the time you start earning till the time you get married; is one of the best periods for accumulating money which would be useful in the period after your marriage and till your increase in income matches with your increase in expenses. The important thing is not what you earn or spend but the important thing is how much you save.
Many time we look at people with huge wealth and say “What a lucky guy he is?”. But that lucky guy would have given up on lavishes in his youth days and over a period of time built on his wealth. |
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INCULCATE A HABIT OF SAVING AND GROWING WEALTH FROM YOUR YOUTH.
HOW SHOULD ONE PLAN IN YOUTH? |
- Cover all your risks. E.g. Mediclaim, Death risk, Home/Office insurance
- Estimate all the probable expenses which can come up in the next 3 years. Invest in fixed deposits, short term debt funds and liquid funds depending on the maturity period. Make a cash flow of your estimated savings for the next three years.
- After the short term funds have been provided for estimate the amount of minimum monthly investment that can be done starting from now. Divide the amount in equity, balanced and MIP’s depending on the risk that you can take and invest in SYSTEMATIC INVESTMENT PLAN’S
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SAVINGS RATE SHOULD BE ATLEAST 50% OF YOUR INCOME.
Go to Investment Advisory for investment options. OR Contact Us |
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I am married & planning for a child ? |
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Planning for a new baby
Before your baby starts taking his or hers first few baby steps, you should be ready by taking steps of your own. No time is too soon if you are going to start a budget for your child for planning for college and marriage expenses as also planning for increasing your insurance cover.
Think of your working life
First, prioritise what is the first and foremost for your family. Think about the following: |
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Is one of the parent going to stay at home full day or you will need the extra household help for a full day.
- If you are opting for a household help for the full day, depending on your locality and type of extra household help you have employed, the extra costs can reduce your savings by a significant amount. Do an estimation of your budget to know whether you can do with the new expenses or have to curtail some expenses.
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If this is your second child, you already must have idea of above. In that case consider the following new additions to cost for your second child. |
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General items. Diapers and packaged food costs would increase.
- Transport. Upgradation of vehicle
- Clothes and furniture. Soft furniture, beddings and clothes for the kids can be costly. As also as your baby grows up the costs will keep getting higher.
- Medical. Larger insurance premiums, doctor visits, vaccinations.
- Savings for education. Start monthly savings in you for your child’s education needs.
- Savings for emergency. Keep 3-6 months of monthly expenses in liquid funds in case required in any contingency.
- Retirement savings. Don’t try to explain your mind that because of the new expenses, savings for retirement will take a back burner for a while. Try to save atleast 5% for your retirement from your net income even in this stage. It will help you in retirement unless you want to be a burden on your children.
- Life insurance. Take adequate life insurance cover so that your child can be taken care of should something happen to you or your spouse.
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I am married with younger children |
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You are married with small children. Your wife may be working or non-working spouse. You credit card debt may be piling up but because of increase in income or addition of working spouse income you still have some surplus to save. This is the time of your life when some bit of prudence will help you save more. Savings will not be easy to come by but as this period is long (15-20 years), financial planning regularly is very important in this period. Don’t forget that “Life begins at 40”. Just observe around you people around age 50. You will see the difference between prudent savers and others.
HOW TO TAKE CARE OF YOUR FUTURE? |
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Insure all your risks. Take a substantial term insurance which would cover all your family’s future goals including pension for your wife at retirement. Once you have any medical problem then it would be very hard to take a big insurance especially at normal rates. Also insure yourselves against health risk and any risks that you can be associated with. There are cases where the whole savings is wiped out in any ailments.
- Build an emergency fund of around 3 to 6 months expenses including EMI’s. Keep this amount in liquid funds or flexi deposits.
- Your short term need would be to accumulate savings for your downpayment of your house. Accumulate the same in short term debt funds and f.d.’s
- Invest for the medium term for your children’s higher education. You can do this via SIP’s in equity and balanced funds depending on your time horizon. You can go for guaranteed ULIP’s(as a hedge to your overall equity portfolio) but only after checking thoroughly the charges and terms and conditions.
- Build up your retirement corpus in the long term. Inflation and rising medical costs will ensure that you need to build up a sizable retirement corpus by the time you retire. If you want to live a life of bliss, it is upto you and you only to build up a big retirement corpus. Invest aggressively in equities till you enter near 8 years from your retirement. Gradually in the next 3 years shift all to debt for the last 5 years.
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I am married with older children ? |
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You are in the middle stage of your career. Your income is high and if you have saved for your children’s goals early on, you can have good savings in absolute terms at this stage. Due to rising expenses of children and home maintenance your savings rate may not substantially increase but because of high income the savings in absolute terms will be higher.
WHAT TO CARE FOR IN THIS STAGE? |
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CHECK ALL RISK COVERS. LIFE, DISABILITY AND HEALTH.
- Check all your goals especially children marriage and education as they are nearing completion. Get all risk assets into safer assets for the children goals and start accumulating for the balance which is pending.
- After your children goals are over, start repaying your loans. There should not be any loan by the time you retire. No need of leverage in retirement if you have invested properly all your life.
- Only after your near term goals especially children goals, loan repayment and sufficient buffer for emergency requirement is taken care of; then start adding in your retirement account. If your retirement is still 10 years away you can choose SIP’s in equity depending on your risk profile. Start shifting your retirement funds to debt if you are nearing retirement.
- If you are nearing retirement, start organizing your accounts
- Inform a beneficiary of legal or financial records, PIN numbers, passwords and other information.
- Throw out old paper statements or bills. Shred the discarded documents to keep them out of the hands of identity thieves.
- Identify all your accounts by looking through the statements you receive, both on paper and online.
- Automate transactions whenever you can.
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How & where to invest after retirement |
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Retirement costs have increased due to higher healthcare expenses, inflation.
Your new income and savings have stopped. Your expenses are now going to come out of your net assets.
WHAT TO TAKE CARE OF BEFORE RETIREMENT? |
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Check mediclaim. By not taking adequate mediclaim you may expose yourself to a huge risk due to any health problem arising.
- If the size of your assets is not adequate to take care of your dependants requirement after you are not there, ensure that you also have an adequate insurance cover.
- Try to finish off any outstanding loan before retirement.
- Check your asset allocation ratios and if equity is excessive start converting to debt.
- Make a list of things to do or hobbies or places to visit after retirement and mention the cost to be incurred in doing all the activities.
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| WHAT TO DO AFTER RETIREMENT? |
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Make a list of all your assets and liabilities. Make a current networth statement bifurcating all your assets in different asset classes.
- Fix a single financial advisor for taking care of your finances. Choose the advisor based on his experience and approach of handling money of retired people.
- Invest your maximum corpus in debt depending on the amount required monthly for you to take care of your expenses. Even if less than 50% may be required to be in debt, then also keep atleast 50% in debt only after retirement.
- Take a break. You have worked your whole life to deserve your retirement.
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