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Just begun working life? Some financial planning tips
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On a cold and chilly afternoon at NCR, Partha Iyengar, founder of Accretus Solutions, a wealth management and financial planning firm, was busy making a series of presentations to a group of 80 youngsters in the age group of 21-30 years.
Mind you, the presentation was not about work or enhancing their IT skills but on financial wellness. Also, it is not about what to invest and when to invest, or tax planning — the most asked questions in any such session.
Partha’s and the company’s objective (which engaged him) is to educate and empower the group of its employees on the basics of money management and personal finance.
He wants these youngsters to apply some basic tools and resources in finance in their daily lives to attain financial freedom over a period of time. So, why is planning and personal finance so important for these youngsters, who have just begun their working life?
Starting Off:
Most people take up their first job between 21 and 27 years. Since the job will earn you a salary, you need to plan what to do with that money. “Whilst there will be expenses that you have to take care of, in the initial or formative years, chances are high that you will save money,” says Iyengar.
There are several things that may vie for your attention — should you start planning for your wedding which is about five years down the line, or buy a house or a car, or go for that overseas trip and so on. Should you simply jump into it or build a corpus first and then plan it out. “The important thing is to plan to reach these milestones and one must have realistic expectations,” says Anup Bhaiya, MD and CEO, Money Honey Financial Services.
Lower Your Expectations:
Very often youngsters have vague ideas about investing . For example, when Iyengar was counselling a young investor (who had just taken up his first job) who was keen on buying a house. His goal was ambitious as he wanted to buy a house for Rs 1.5 crore [in today’s value ] in five years.
After collecting data on his current income, cash flows and future income potential, Iyengar found out that it would not be possible for him to reach the goal.
His rationale and recommendation to the young investor was: “Based on your earnings expectation of a salary of Rs 1 lakh per month after five years, our back-of-the-envelope calculations [without even factoring in inflation and possibly higher interest rates] says, to buy a Rs 1.5 crore house, you would need your own contribution of Rs 30 lakh and a loan component of Rs 1.2 crore. Now, a Rs 1.2-crore loan would entail a monthly EMI of around Rs 1 lakh approximately .
Of course, we are assuming that you have saved as and your family would also contribute the margin money of Rs 30 lakh in five years. Even if your entire salary [again assuming taxes would be paid by you somehow] goes towards meeting the EMI commitment, you still would need to cover for your monthly and personal expenses . Therefore, Iyengar suggested that he scale his budget down to Rs 50 lakh. This can be done.”
Source :- The Economic Times |
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