Peeyush Pachauri, a Bhubaneswar-based software engineer in his late twenties, is a changed man, having drastically cut down on his spending habits in the last three months. He does not eat out as frequently as he did. Parties with friends used to be lavish affairs at expensive hotels. Now he parties with just a few friends at home. Instead of flying to Jhansi to meet his parents, he now takes a train. For the first time in his life, he is keeping track of how much he spends on groceries.
Piyush Pachauri
The change is not just a fall-out of bad times but a conscious decision to curtail spending. “Earlier I used to spend money like anything, but I realized that the way I was going was not prudent and I needed to be smarter with my finances,” says Pachauri.
He came back India three months ago, after spending around two years in the US and six months in the Asia-Pacific region on off-site assignments. He did not make any planned investments all that while, except for accumulating insurance, which his father had got for him. However, he has substantial savings, which he held on to even as the markets crashed. He knows that if invested properly, these savings can help him reach his goals.
Right now, his priority is to buy a house, a decision he has been postponing for a year as he wants to benefit from the slump. “I intend to stay in the house, but even if I move elsewhere, a house is always a great investment, especially since prices have fallen,” he says. Marriage is also on the cards, as is buying a car.
Pachauri is determined to take complete charge of his finances from now on. We chalk out a plan for him.
Pachauri’s goals
What should his financial strategy be?
Pachauri, 27, is currently single and plans to get married later in the year. He also wants to buy a house and a car in the next few years.
Pachauri earns Rs40,000 a month and manages to save more than 70% of his earnings. His assets are mainly a healthy bank balance of Rs15 lakh, a plot acquired last year, now worth Rs9 lakh, and some financial instruments such as National Savings Certificate (NSC) and tax-saving mutual funds. He does not have any liabilities at this point. Further, Pachauri has investments in various insurance policies taken over the last few years. This year, he plans to get married and buy a house as well, which means that his current lifestyle and spending pattern will change.
Pachauri has time on his side— retirement is more than 25 years away. However, most of his savings will be used up to pay the premiums of the insurance policies he has already taken. The current surplus he has by way of bank balance will be required for his near-future goals of a house, car, holiday and education. Other accumulations will be used up for his long-term goals, such as his children’s education and marriage. Hence, there is little on which to build a retirement corpus.