Home / Money / Personal Finance /  Planning can help you stay stress free in tough times

Jayakumar Ramakrishnan, a manager at a Chennai-based software company, is thankful that he has one less thing to worry about as he manages working from home amid the covid-19 lockdown. “I don’t have to worry about my cash flows immediately as I have an emergency corpus to fall back on," said Ramakrishnan. This also means he can continue with his investments to service his goals, and doesn’t have to divert them towards regularizing cash flows like many others are being compelled to do right now.

Ramakrishnan is in a comfortable place because he has a financial plan, but things were not always as smooth for him. He believes it would have made a huge difference had he started investing in a planned manner right from the time he first started earning.

Ramakrishnan still remembers the thrill of getting his first salary in 2004. It was way more money than he was used to receiving as a student. After living on a shoe-string budget for most of his life, the first few months of having adequate money to spend on small pleasures like eating out felt liberating. “After those years of deprivation, I spent ‘lavishly’ and hardly thought about saving at the time, but that was also because of the lack of financial literacy," said the 40-year-old.

But indulging himself in those initial months didn’t mean he was shirking responsibility. His parents had worked hard to provide him with a good education, and it was all coming full circle as he now had to take care of family commitments. “I was from a lower middle class family and once I got a job, I helped improve my family’s financial situation," said Ramakrishnan, who also started putting aside some money for his sister’s wedding.

It was only after his sister got married in 2009 that Ramakrishnan could think about his personal finances. “I literally had zero bank balance after my sister got married and had to start over with a clean slate," he said. He had tried investing in the equities in a small way before that but the 2008 crisis stung him and he decided to stay away from the market altogether.

If only he had known how to allocate his savings to various asset classes. “Creating a financial plan early would have ensured that part of his savings was invested separately for his sister’s wedding. For short-term goals like this, the money should be invested in fixed deposits and debt funds (liquid, ultra-short and short-term)," said Shashi Singh, a Sebi-registered investment adviser and founder, FinMyn, whom Ramakrishnan only started consulting around nine years later in 2018.

A couple of years after his sister’s marriage, Ramakrishnan himself got married and moved abroad for work in 2012. He was able to save a significant amount while abroad, but he was still not investing systematically. “I went back to equity investing but there was no structure to it. The only other investments I had were in traditional life insurance policies," he said.

When he returned to India in 2017, he started reading newspaper articles on personal finance and participating in discussions on social media groups. “I found out about Shashi on one such group," said Ramakrishnan.

Singh had his task cut out as Ramakrishnan’s portfolio had multiple issues. “Though he had financial goals in mind (retirement as well as the education and marriage of his only son Vaibhav, who is seven now), his investments were not aligned to them," said Singh. Ramakrishnan fixed a target corpus for each goal so that he could channelize his investments accordingly.

The more problematic part was that he had no protection of any kind. He didn’t have an earmarked emergency corpus, adequate life insurance cover or a separate health insurance for his family, other than what his employer provided. He went on to build an emergency corpus and added a term cover to boost his life insurance. Singh also explained to him that it’s a must for everyone to have a separate health cover. “There is a possibility that during the transition from one job to another an individual and his family may not have coverage from any company and that is risky," said Singh.

Ramakrishnan also had way too much equity exposure initially, and that too in many mid- and small-cap stocks, which were not performing well. He was advised to sell mid- and small-cap stocks (some of them at a severe loss) and deploy the proceeds in mutual funds aligned to his goals. Ramakrishnan still invests a significant portion of his corpus in equities, through mutual funds, for his long-term goals. “The covid-19 pandemic has caused almost a 30% drop in the valuation of the market across geographies. So I have advised him to expedite his periodic investments in the coming three to six months to take advantage of the lower price range in the market," said Singh.

Ramakrishnan credits Singh for making the financial planning process simple. His only regret is not approaching a planner earlier. “The present generation is wiser when it comes to investing, and they start early," said Ramakrishnan. But he is thankful he got on the bus when he did.

Jayakumar, pictured here with wife Aarthi and son Vaibhav, is glad he has an adequate emergency corpus is place

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