By Tensing Rodrigues*
Once the days for living on love and fresh air are over you need to sit down to secure your future. The very same strategy that you have followed to come together you need to follow in your financial investments. Plan well but be ready for bad times.
The first step in the planning is to draw a line across a sheet of paper, top to bottom, on the left, with a broad margin. At the bottom of the line mark a point. To its left in the margin, put today’s date. On the right put START in capital letters. Then start your planning. A little above the first point, mark another point. This is where you may need your first big expenditure. Leave out the relatively smaller expenses like buying a TV, washing machine, etc; because these will unnecessarily clutter the line and distract you from the bigger events. I am not even considering the birth of your first child. You cannot invest for it now as it is likely to happen pretty too soon.
The first big event I suppose will be the purchase of a house. So write that on the paper with the tentative date. The next big event will be the higher education of children. Then comes the third, and the last event- retirement. Here I have a suggestion. Do not go by the convention of retiring at 60 or so; say quits anytime between 40 and 50. The reason is simple. If you slog till 60 or 60+, you have very little time left to enjoy life.
So your line now will have three points. If you think of some more important event include that as well. But for illustration sake lets work with three points. The first event is likely to come about five years from the start, the second about 17 years, and the last about 25 years.
The first item on the agenda now, is to secure the plan. For that you will have to buy an insurance policy. Go for a term plan. The details will vary according to specific situation. If both partners are working and earning and plan to continue to work till retirement then you will have to adjust the cover accordingly. The deciding factor is the answer to the question, if I die how much will my family need to carry on? Then each of your sum assured should be sufficient to provide the shortfall. If only one spouse is working, then the SA for that person has to be sufficient to cover the sustenance of the entire family. If both are working, then the term of the policy should be such that it provides cover till the last child begins to work and earn.
Now the investment part. I am looking at just three investment options, bank term deposits, equity via equity mutual funds and debt funds; you may also use PPF and some other small savings schemes, depending on tax saving needs and age eligibility.
The second event is quite far off – 17 years or so. For the first ten years invest wholly in equity and grow your corpus at full steam and for the next seven years grow it cautiously. After the first ten years’ growth you will know where you stand with respect to your target. So you can adjust your risk taking accordingly. But in no case be too rash; be satisfied with what you get. More important for this goal is the other investment – invest in your child regularly by providing for the health of body and mind. Do not hesitate to invest in sports activities, reading and learning. Mere corpus for higher education will not be sufficient to realise her and your dreams; she has to grow her capabilities to achieve them.
Finally your retirement. Since you have almost 25 years to grow that corpus, you can go full steam for the first 20 years, and then be a little cautious. However, this corpus is not going to be used at one go. You will be drawing from it a little by little. So you can afford to remain in equity even till the end, almost. But do not go for a readymade pension plan, or something that is called a pension plan. It is bad for tax. Create a corpus on your own, and draw from it every month, or every fortnight. That should take care of your needs – basic sustenance, medical expenses if any and something for indulging in passion. If both partners are working create two separate pension corpuses that will give you more flexibility.
Now go enjoy life in peace.
*The author is an investment consultant. Readers can send their comments and queries to firstname.lastname@example.org