Never get emotional and mix finances with family

For the longest time, Sachin Ahuja, a mid-level manager at a multi-national company in Pune, planned his investments based on discussions with his friends, but it didn’t always work for him. “Sometimes I would get lost because of too much information and at other times, I wouldn’t get the right amount of information in order to choose an investment product or even insurance,” said the 35-year-old.

But it was when he decided to increase his life insurance cover that he really got stuck. He got in touch with the agents of two insurance companies but found out that the plans they were advising him to buy were not in line with what he was looking for.

At this point, Sachin and his wife Shruti Ahuja, 35, a relationship officer with a school chain, decided to meet a financial planner. “I needed someone who is ethical and not influenced by commissions to help me plan my financial journey,” said Sachin. They met Basavaraj Tonagatti, a Sebi-registered investment adviser and certified financial planner, to get their money life on track and to ensure that they had enough for the various goals.

Like most Indian families, the couple’s top goals include having sufficient life and health covers for the family, putting in place a retirement corpus and building an education fund for their eight-year-old son Harshal. Sachin said it was the financial planner who helped him prioritize these goals. “He (Tonagatti) has proposed a mix of equity and debt investments for my long- and short-term goals. I am working on executing the plan,” said Sachin.

The planner took a holistic approach by taking into account the couple’s cash flows, goals and risk profile to arrive at a financial plan.

“The couple was very particular about their goals. Whether it is their child’s education or the couple’s intention to study further or launch a startup, it was important for me to understand and prioritize these goals according to their income and accumulated wealth,” said Tonagatti.

When Sachin met Tonagatti a couple of months ago, his asset allocation was heavily tilted towards cash and debt. The first thing the planner asked the couple to do was to deploy existing cash towards their goals immediately (after directing a percentage of it towards an emergency corpus).

“After exiting certain bad investments such as traditional life insurance products, I linked the remaining instruments with their future financial goals. I excluded real estate from the plan because it was only a vacant piece of land and his parents’ house,” said Tonagatti.

Since most of the couple’s goals are long term, the planner suggested them to follow an asset allocation of 60:40 in equity and debt.

The planner also asked them to focus on primary goals such as their child’s education and their own retirement. It was through the planner that the couple learnt the importance of having a retirement plan and how this goal shouldn’t be compromised in order to fulfil others. “I am trying to stick to the plan and invest regularly towards my retirement,” said Ahuja.

For the couple’s career growth, which may include studying further, Tonagatti has advised them to use a combination of safer debt products such as bank fixed deposits, recurring deposits and liquid funds.

Of all the money mistakes made, taking a home loan on behalf of a relative who didn’t repay on time was the biggest, according to Sachin. “My credit score took a beating because of this,” he said. “I learnt a lesson the hard way but now I know that I must not mix finances and family.”

Treating insurance policies as investments is another regret Sachin has. “True life insurance is buying a term plan. Also, taking a huge life cover for someone who is old and doesn’t have dependants doesn’t make sense. I did this for my mother but I should’ve actually gotten her a higher health insurance cover,” said Sachin. Another thing he had to fix was his exposure to equities, which Tonagatti helped him increase.

“Once you have a financial plan in place, it brings a sense of security and confidence,” said Sachin. Though it hasn’t been very long since the couple started working with a financial planner, they now have more clarity about their cash flows, savings and investments.

Mistake I won't repeat