A DIY approach was not yielding the results that Sarath G. and Harika wanted from their investments
Bengaluru-based Sarath felt that if so much time at work is spent on making plans and setting targets—monthly and annual—why couldn’t he follow a similar structure for his personal finances. He and his wife, Harika, knew they needed to set things in order but couldn’t find the time. “Most of our investments turned towards debt as the family grew. We knew this wasn’t right," said Sarath. The couple have a 3-year-old daughter. Harika felt they needed the help of a professional, and she started doing research on financial planners.
As part of the initial steps of building a financial plan, the couple had to put together complete information of their assets and liabilities. “That struck me hard. There were too many insurance policies, and things were not organised. It took us 2-3 months just to get this information together," said Sarath.
Harika, who used to invest in stocks, felt their finances were not structured properly. “I was doing this myself, and felt we needed a professional. There has to be a practical approach," said Harika.
According to Sarath, the strong point of having a financial plan is that “there are inputs, then there is a process, and then an output."
When notions and concepts are put into numbers, they change. The same happened with Sarath and Harika. “We penned down priorities and goals, and ranked them—when do you expect this to happen, for example, retirement or daughter’s education," said Sarath.
Listing down the details, while difficult, helped them organise their priorities. “It took us a few weekends (to get details together) but it was a good starting point," said Sarath, adding that this exercise helped them see the current situation and gave a realistic view. “Once we identified our goals, it became easier to stick to them," said Harika.
Some of the changes that were made included increasing the family’s health insurance. “For whom, and how much? We were under-insured; we topped up the plans," said Sarath, adding that some unit-linked insurance plans (Ulips) were stopped.
The couple also wanted to buy a bigger second car, but have deferred this purchase. “It would be a depreciating asset, so we reduced its priority," said Sarath.
Some other goals also changed in priority. “Buying a second house, foreign travel… have taken a back seat," said Harika.
They learnt what goals mean in numbers. “There is a method and a process. Some things can’t be planned for, but whatever can be planned, should be," said Sarath.
Other changes included rebalancing the portfolio. Now it is a suitable mix of debt and equity, depending on the goal. Equity mutual funds are for long-term goals, and FMPs (fixed maturity plans) for near-term goals. “We will slowly move to debt as we near a target," said Sarath.
As a person who invested herself, Harika has also had her share of lessons. While the stocks the couple had invested in, continue, “the overall approach is more streamlined now."
“I used to invest in stocks purely out of boredom. It was a short stint, and it was quite risky. Then I started reading about mutual funds and started investing in those. I stopped that also. One needs to do a lot of calculation. How much to go into which fund? All (the money) can’t be in one fund, and one also can’t have 10-12 funds, and get confused," said Harika.
With a financial plan in place, the Bengaluru-based couple feels they are more confident now. “We have a choice. We can meet some goals and postpone others, or slowly meet all," said Sarath. Whatever be the decisions, they feel that they are in a better position now to take informed decisions. “On our own, the monthly commitment wouldn’t be there. Life has become easier, and we have mental peace. Most people don’t realise the result of committed investments," said Harika.
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Financial planner: Amit Kukreja, Sebi-registered financial adviser and founder Amitkukreja.com