Don’t we all dream of owning a lovely duplex, flashy car, securing the future of our children, spending on luxuries and last but not least ensuring a comfortable retired life for ourselves? To sum it up, you can refer to this as the Big Fat Indian Dream. But do you know what gets in the way of achieving this dream of ours? Yes, you got that right; it’s the even bigger financial constraints! Whether it is less income yet high expenses, meager savings, unwise investments, the large number of unsettled debts, or lack of planning, they all distance us from our ultimate goal by building up constraint barriers.
So if you want to fulfill your financial aspirations then you need to follow 3 fundamental principles:
- Setting goals
- Making wise investment decisions &
- Monitoring of investments
But these factors are in turn dependent on an individual’s age and other situational factors. The investment decision of an unmarried person will be very different from that of a married man with two kids. The financial goals of an investor need to be matched with his risk tolerance.
We have jotted down various stages of a person’s life and what should be his approach towards financial management of the same. We have devised a road map which everyone can follow and be rest assured of attaining their financial goals in no time.
Accumulation of Wealth
Events like marriage, children, purchasing a new flat, divorce, health issues of aged parents, etc have a considerable impact on the financial goals of an individual. One of the main motives which remain constant throughout an individual’s life is wealth accumulation. While working and earning the monthly paycheck, a major goal remains to ensure a comfortable retirement phase. However, after retirement, the focus shifts to preserving the wealth for passing it on to the next generation or some charitable trust.
Mostly this group consists of fresh graduates who have bagged a new job with a good package. Since this is the beginning of your career, you will have both time and age by your side. Thus if you plan your investments wisely, you can secure a happy and healthy future for yourself as well as your dependent family. You can do the same by following these guidelines:
- During this age, one’s corporate medical cover is either nil or extremely low. Thus you need to first get a health insurance done which will act as a cushion against health hazards and high medical expenses.
- You must make saving your foremost habit. Even if it’s a few thousand rupees the same will one day accumulate and shield you against emergency expenditures. It is advisable to save at least 10% of the monthly earning.
- Most of the fresh graduates have to bear the burden of their mammoth educational loans. Thus after ensuring a steady income, your first priority should be paying off the same
- On the investment frontier, you can try out tax saving instruments like ELSS and PPF. Your equity portfolio should reflect a mixture of both balanced and diversified funds.
At this stage no doubt your earning will be much more in comparison to your fresher days. But simultaneously your expenses will show a steep increase. By this time most people are married and have a family to take care of. One of the foremost priorities during this time span is gaining financial independence, reducing tax burden as well as keeping something aside for retirement days. Some tips for fund management at this stage are discussed in brief below:
- Start saving for your upcoming marriage and children. You can open a savings account and start accumulating the fund for similar purposes.
- This is the final stage of paying off student loans, car debts and other forms of liabilities. If you are not done with the same then you have already crossed the danger line. Paying off all loans frees up your earning for retirement-oriented savings.
- With more and more employees losing jobs in the current covid-19 phase, you need to have a buffer of at least six months earning to safeguard you and your family against any such unforeseen circumstances. So if either you or your spouse loses the job, you will still be able to pay your basic bills.
- You need to set aside at least 15% of your monthly earning as your retirement fund. This should be started off at the beginning of your 30s as the longer time you take, the longer you will have to keep on working under stress to build up a handsome retirement fund.
- You may invest in term insurance policies which will cover your liabilities along with providing protection to your dependent beneficiaries. Health insurance policies are also mandatory as both of these come with considerable tax saving opportunities.
With a home loan EMI and other expenses, one of the major expense during this stage is an education of children.
If you want to be a long run player then your investment portfolio should mostly consist of equity oriented funds like multi caps, equity MFs, and balanced funds.
Disability rider, critical illness policy, and family floater health insurance policies become utmost necessities at this point.
While at 50’s
Pre-retirement phases usually signify paid off mortgages, children who are already independent and have started earning and relatively high credit score. Thus at this stage, your aim goes through a paradigm shift from wealth accumulation to wealth preservation. Although you will have a big amount of accumulated wealth at this stage, your probability of further income is very low.
With both marriages of children and retirement knocking at the door, you need to divert your portfolio towards debt investment. However, equity instruments need not be ignored completely. Proper balancing of debt and equity investments will help the soon to be retired people in achieving high returns during post-retirement stage which will not be affected by inflation.
To 60s and beyond
With great advancement in the field of medical science, our life expectancy has increased considerably in comparison to our forefathers. The flipside of this increased lifespan is that you will now have to save more to live your golden years in comfort. The major source of a retired person’s wealth is a pension plan, social security money, and personal savings. However, you need to keep in mind that your medical expenses will keep on increasing. Thus if you spend too much in your early retirement years then you will for sure face a cash crunch in the later part.
Your entire corpus can be invested in regular income generating investments like monthly income schemes and fixed deposits. You may even split your investment with your spouse if both of you are senior citizens to gain tax benefits.
Thus if you don’t plan out your finance properly then you will be left with no other alternative than to keep on working even after crossing 60 to sustain your livelihood.
So this is how you need to take informed decisions to plan your investments at different stages of your life. You can always get in touch with a finance expert to make this transition from one stage to another, smooth and easy.