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Financial planning is all about getting rich! Right? Wrong. Many people harbor this misconception when they think of financial planning. When my 23-year-old cousin, who’d just completed MBA, got a job in one of the MNCs based in Hyderabad, he walked up to me asking me to advise him on the aspect of financial planning. I was surprised and wondered if youngsters are really so concerned about managing their finances and planning for the future to the extent of post retirement life.

I have to admit, though, the current generation of youngsters is more organized and has a better understanding of its needs and wants. Although financial planning at an early stage is important, what he replied was even more surprising. His friends who had just landed jobs had discussed about what to do with their first pay check and had even discussed their goals, buying a house and a car, honeymoon abroad, and even far-off goal such as retirement planning.

This instance prompted me to rethink the importance of financial planning and why everyone should understand the need of it. I discussed with a few of my friends who are financial planners. Let me try to put things, which they suggested, in a perspective. This will take into account what my cousin is planning for and then discuss things in general. The planning may be exhaustive but it has to be reviewed at least once in a quarter for change in schemes and at least once every 3 or 5 years to change the composition or structure of the portfolio according to the change in needs, wants or change in dynamics of life.

How To Spend It

Let’s begin by his current position and plan for the next five years. His current take home salary is Rs 25,000 post-tax and he is spending Rs 11,000 monthly on unplanned miscellaneous expenses as well.

The initial target for him was to stay in the company for at least 5 years period post which he wants to get married. His expected increase in salary annually is 8% and his immediate goal is to have decent gold for marriage and a corpus which will help him in going abroad for honeymoon.

His initial goals are to buy at least 50 grams of gold from his own, approximate cost of which is Rs 2 lakh, assuming gold price rises at 5% p.a. The current expense on honeymoon abroad, which he is planning, costs approximately Rs 1.5 lakhs. At 8% inflation it would cost around 2.20 lakh.

The next target post marriage is to buy a car. The current cost of car he is planning to buy costs around Rs 5 lakh on road. With inflation at 8% it would cost around 7.50 lakh. He wants to ensure at least 50% of it can be paid in the form of down payment (approx 3.50 lakh).

The other aspect he stressed was to start building corpus dedicated towards retirement. His current position as a bachelor for the next five year period can be put in the tabular format (See A Beginner’s Roadmap).

A Beginner’s Roadmap: How You Can Plan Your Expenses If Your Salary Is Rs 25K

Revenue & Expenses p.m. Year 1 p.m. Year 2 p.m. Year 3 p.m. Year 4 p.m. Year 5
Current salary per
25,000 3,00,000 27,000 3,24,000 29,160 3,49,920 31,493 3,77,914 34,012 4,08,147
cab costs
2,000 24,000 2,200 26,400 2,400 28,800 2,600 31,200 2,800 33,600
Rent (shared
2,000 24,000 2,200 26,400 2,400 28,800 2,600 31,200 2,600 31,200
Groceries and other
expenses shared by all
2,000 24,000 2,200 26,400 2,400 28,800 2,600 31,200 2,600 31,200
Miscellaneous 5,000 60,000 5,000 60,000 5,000 60,000 5,000 60,000 5,000 60,000
Surplus 14,000 1,68,000 15,400 1,84,800 16,960 2,03,520 18,693 2,24,314 21,012 2,52,147
Expected hike in
infl ation
8%   8%   8%   8%   8%  

Number Game

Financial planners suggest various ways and alternative strategies to help him attain his goals, considering he is a bachelor and has no dependants. These include suggestions such as investing Rs 4000 p.m. initially in an equity SIP with major exposure towards small and mid cap funds considering the risk appetite. He should also invest Rs 1000 p.m. initially in the NPS for retirement which will be available only post retirement. He should, as planners suggest, start putting Rs 4000 in a gold investment plan of a reputed jeweler. The only concern here would be that the accumulated amount can only be redeemed against jewelry of that jeweler. However, considering this is on the priority list, this is advisable. Also, he may decide to split the investment in two jewelers as well.

Although a bachelor, my financial planner friends advised him to have an emergency fund/ contingency fund in the bank so that it will be accessible in case of emergency. He may decide to put the money in a liquid fund as well against bank and stand a chance to get higher rates than what banks offer on a savings deposit (See Planning Process).

The remaining amount can be planned to invest in direct equity. The advice I gave him was not be too greedy and book profits at regular intervals as per the target set. The target may be 10% or 15% net of brokerages. At least, 50% of the amount must be managed in that way and probably stay invested with anticipation of higher returns with the remaining amount.

Post marriage, experts say it is better to sit and brainstorm the current portfolio and investment style in sync with the goals and objectives of both the partners. There are other things to consider post marriage

The growth rates considered are also on a conservative side. So, at the end of 5 years, his targets can be achieved like this. Emergency fund in a bank would grow to Rs 2,45,463 (at 4% return). His SIP investment in equity mutual fund would generate a corpus of Rs 309748 (assuming 10% return) while gold saving scheme would generate Rs 2,60000.

The gold target at this rate can be achieved and can buy targeted 50 grams gold even if the gold costs 52,000 per 10 grams. Investment in direct equity would grow to Rs 3,63,352 (at 10% return).

The planned honeymoon can be achieved as well from the money collected in SIP/ equity. Even if the SIP/ equity grows at only 6% as against 10% (which is also conservative figure when it comes to equity in a 5 year period) it would be enough to cover the honeymoon expenses.

Apart from honeymoon, the down payment requirement of Rs 3.50 lakh can also be achieved from SIP or direct equity. Apart from this, the bank/liquid fund will have around Rs 2.50 lakh of cash (@ 4% bank rate), it may be higher in case the money is put in a liquid fund.

Goal Setting Post Marriage

The key takeaway is, if one is organized, has a clear targets set (that are realistic), little bit of planning and a bit of little guidance would turn to be of great help. It is important however to review the portfolio every quarter or whenever there is a change in the targeted objectives.

Post marriage, experts say it is better to sit and brainstorm the current portfolio and investment style in sync with the goals and objectives of both the partners. There are other things to consider post marriage.

The first important thing is to ensure safety and security in the form of life insurance, preferably a term plan that would provide a higher coverage for a smaller amount, instead of a ULIP.

If one is planning for kids, it may involve lot of cost towards hospital pre and post delivery. So, one can take a health insurance policy to take care of most of the healthcare requirements. It is however important to choose a plan which will cover most number of diseases, has cashless facility and where the insurance provider has tie up with many hospitals.

Apart from the healthcare requirement during parenthood, one should also look at the cost it will involve to raise a child. So with marriage and kids the entire dynamics of life and the way risk is perceived changes.

And last but not the least, it is better to discuss with a financial planner and arrive at a clear investment plan to achieve the revised targeted goals or change portfolio mix based on the change in risk appetite or change in the investment surplus.

Planning Process: How Monthly Investments Should Be Planned

Investment p.m. Year 1 p.m. Year 2 p.m. Year 3 p.m. Year 4 p.m. Year 5
Emergency fund-20%
in a bank/liquid fund
2,800 33,600 3,080 36,960 3,392 40,704 3,739 44,863 4,202 50,429
Equity mutual fund
4,000 48,000 4,000 48,000 4,000 48,000 4,000 48,000 4,000 48,000
Retirement planning-
NPS (Rs.1000 p.m.)
1,000 12,000 1,000 12,000 1,000 12,000 1,000 12,000 1,000 12,000
Gold for marriage 4,000 48,000 4,000 48,000 4,000 48,000 4,000 48,000 4,000 48,000
Direct equity 2,200 26,400 3,320 39,840 4,568 54,816 5,954 71,451q 7,810 93,717


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