The end of a financial year should get you excited about reviewing your financial life, and implementing the lessons in the new year. Five individuals we spoke to did just that
For the salaried, the perfect opportunity to review one’s financial plan or to get onto it is when the HR department hands out the investment declaration form based on which taxes will be deducted for the new financial year. But often, the opportunity is missed, because instead of a big picture approach, you see the form through the narrow prism of saving taxes, and that’s a cardinal mistake. The beginning of a new financial year is the perfect time to take stock of your money life: build that emergency corpus, close that loan with high interest rate, top up that health insurance policy, take stock of your asset allocation. In fact, just like the calendar year-end has you brimming with ideas for New Year’s resolutions, the end of a financial year, too, should get you excited about reviewing your financial life, and implementing the lessons in the New Year. Five individuals we spoke to did just that. They have drawn from their past mistakes and resolved towards a better financial path. But your financial life is not just guided by investments; cultivating spending discipline is equally important. To help you do that, we pick five tips that will make you a smart spender. Read on and take charge of your money, not just this one time, but at the beginning of every year.
I want financial freedom; don’t want to be dependent on pay cheque
1) Buying insurance policies for the purpose of investment
2) Signing documents without understanding the clauses and fine print
The one big resolution for Dhanya Rajagopalan for the new financial year is to get professional help to manage her money. She wants the comfort of a financial adviser because she wants to start investing in equities.
Dhanya, 35, works as a technical product manager at Qube Cinema Technologies. “Most of my investments are in real estate and gold and these are highly illiquid which won’t help in case of an emergency," she said. However, that’s not the only reason why she wants to diversify; she also wants to diversify as she understands that the kicker of equities is needed for long-term goals such as retirement.
“I don’t have the knowledge to invest in equities," she said. “The market volatility makes me panic and even though I will invest in mutual funds, I still need professional support to choose the funds and help me through market ups and downs," she added.
Dhanya, like many others, has parked her savings in traditional assets like gold and real estate. While it’s partly due to the comfort these products provide, it’s also because she till now didn’t have a holistic view about her money.
“Building physical assets is not the same as attaining financial freedom. One needs to chalk out goals and invest accordingly. I don’t want to be dependent on my pay cheque forever and my planner and I are working on this," she added.
Dhanya is consulting with ithought, an investment advisory firm in Chennai, and plans to kick start her investments from April.
Our immediate target is to set aside some money for emergencies
—Ashwini Kumar Sharma
Name: Sandip Kumar Bansal
Profession:Accounting and tax professional
Age: 35 years
Financial planner: Ashish Kumar, a Delhi-based Independent Financial Advisor
Broad asset allocation
Physical Assets: 5%
Mistakes I won’t be repeating
1) I will resist short-term trading in the equity market
2) Will buy health and life insurance with adequate cover
For the Bansals, this year will be about creating an emergency corpus and fighting the temptation to trade in the stock market. Sandip Kumar Bansal, 35, an accounting and tax professional based in Delhi, started investing in mutual funds 7-8 years back when he met Ashish Kumar, an independent financial adviser. “I started investing with a systematic investment plan (SIP) of just Rs1,000," said Sandip. Till then, most of his investments were in fixed deposits or direct equity. His adviser introduced him to the concepts of debt and equity mutual funds, and how it is better to invest in these. Sandip understood the aspects of liquidity, tax efficiency, lower risk and ease of investing.
Since then, he has been increasing the SIP amounts and occasionally invests lump-sums in mutual funds.
For this year, Sandip and his wife Nidhi, 33, plan to invest and save according to goals. They realize the importance of setting up goals and having a financial plan. Till now, their investments were not aligned to specific goals. “We have goals like setting up Nidhi’s clinic for physiotherapy, buying a house, child’s education and post-retirement planning. We will sit with our adviser and align our investments accordingly," said Sandip.
Nidhi is a physiotherapist, but she took a break from practicing to take care of their son, Jigyan, who is now 4 years old. “Things are more settled now and Nidhi is looking forward to starting her practice again, probably from the next month," said Sandip.
The only loan (car loan) that the coupe had is now over. “So, we expect to have more money at our disposal and for investments in the next few months," said Sandip. At present, he invests around Rs25,000 in mutual funds through SIPs, mostly in equity oriented funds. He has also invested in direct equity.
“I had been investing a small portion of my savings in direct equity, but last year, I started short-term trading—despite a warning from my adviser—and I incurred some losses. I learnt my lesson the hard way, and in future, I will restrict myself," said Sandip. He plans to continue investing in direct equity, but will restrict it to 5% of the portfolio, and only with a long-term horizon.
Apart from these changes, Sandip also wants to reassess his current life and health insurance policies, and if needed, he will enhance the coverage. For this he will ask his adviser for help in evaluating and buying the relevant policies. His immediate plan, however, is to set aside some money for emergencies.
1) Investing in products that don’t match with my financial plan, out of pressure from banks or agents
2) Not maintaining a large enough emergency fund
Before he met financial adviser Khyati Mashru, Anthony Devassy, 38, was interacting with five or six people to manage his personal finances. A different person to help file taxes, another to help him pick insurance plans and yet another to help with health insurance.
After a detailed conversation with Mashru, Anthony realised that he needed to consolidate all his financial transactions under the care of one person and apply a customised approach to financial planning. One of the first things he achieved last year was to invest more towards mutual funds in his overall portfolio and discontinue the unit-linked insurance plans.
Moving into the new financial year, Anthony and his wife, Reejas Anthony Devassy, 35, who is a homemaker, are keen to implement some of the other aspects of the financial plan which haven’t yet been executed. Last year, when he was faced with an unexpected expenditure, he realised the importance of having an adequate emergency fund. Anthony has prioritized this activity for the coming year.
He would like to repay his home loan over the next 5 years and set up a mutual fund corpus for meeting this near-term goal. Lastly, he is keen to upgrade his current health insurance plan, to have ample cover for himself, his wife and their 10-year-old son Adrien. One tool that Anthony feels will help is a budget tracker that guides on expenditures and allocations made through the year.
We are able to manage finances of two households
—Kayezad E. Adajania
Name: Jatin D. Sampat
Profession: Network professional
Age: 32 years
Financial planner: Kalpesh Ashar, founder, Full Circle Financial Planners and Advisors
Broad asset allocation
Physical assets: Nil
Mistakes I won’t be repeating
1) I will avoid buying insurance policies that combine insurance and investment. Till 2015, I had four endowment policies for which I used to pay an annual premium of Rs28,000 for a sum assured of just Rs6 lakh. I will now only stick to term plan for my insurance
2) I will always have a contingency fund that helps me take care of any sudden expenses
3) I will avoid taking personal loans or any other loan, unless it is absolutely necessary to do so
Living it up and working hard in Sydney, Australia, Jatin D. Sampat, 32, and his wife Dhanashree J. Sampat, 32, have set sights on three key financial goals for the year ahead. Having migrated a little over a year back, the young couple wants to start a family.
Jatin’s family in Mumbai is looking for a bride for his younger brother, and Jatin, being the elder brother, wants to set aside some money for his brother’s wedding, which he says could happen in a year’s time. Some jewellery for Dhanashree and a home in Australia within the next 5 years are among the couple’s priorities at the moment.
For the long-term goals, the couple invests Rs75,000 every month from their earnings into equity mutual funds through SIPs back in India, under the watch of their financial planner Kalpesh Ashar.
The biggest learning for Jatin was the importance of a contingency fund; a fund that helped him move to Australia at short notice and which he is also using at present to plan for his brother’s wedding.
Ashar uses ultra short-term mutual funds for such short-term goals. From investing just Rs5,000 a month in mutual funds till about a couple of years back, being burdened with four endowment policies that hardly gave any returns, and a personal loan that Ashar says was “totally uncalled for", today the Sampats are able to manage the finances of their two households relatively easily. Having a financial plan has helped them fulfil their goals—big and small.
In FY19, I want to rebuild my savings and rebuild it fast
Name: Sonika Mehra
Profession: Works with an international finance company
Age: 30 years
Financial Planner: Deepali Sen, founder, Srujan Srujan Financial Advisers LLP
Broad asset allocation
Physical assets: Some gold jewellery given by parents. No real estate
Mistakes I won’t be repeating
1) I will make sure that I use my increment properly. This year I have to invest it carefully so that I can manage the increased tax outgo this year
2) I have to re-start SIPs. Earlier, I used to invest equally in equity and debt funds; but for this year, it will be 80-85% in equity. I will invest in debt funds soon after.
3) I want to continue to travel a lot, but more within India
Sonika Mehra works with an international finance company but admits that while professionals like her understand the market situation, it is only in broad terms. To invest one’s own money, the knowledge has to be much more. This is why she has been consulting with a financial planner for a few years now, and has reaped the benefits of it. Sonika got married recently and used some of her savings there.
In financial year 2019, she plans to rebuild and rebuild fast. “When I used my money for the wedding, it became even more evident how important it was (and continues to be) to have a financial plan," she said.
Sonika plans to start systematic investment plans (SIPs) again, but with a difference. Earlier, she had invested in equity as well as debt funds, but now she will start mostly with equity funds. “About 80-85% will be in equity funds, and the rest in debt funds. Eventually, I will increase the debt fund portfolio," she said.
Sonika also wants her husband, 32-year-old Kalyan Dutta, to pay more attention to investments and future goals.
In FY19, Sonika plans to use her increment more judiciously, and keep the tax aspects in mind. “This time I will invest it properly." As her income has increased, she wants to increase the outgo to tax-saving instruments as well.
Her enthusiasm for travelling has not dimmed and Sonika plans to continue her travel adventures, but she may do more domestic trips this year.