KOCHI: The trick in financial planning is that there is always scope for improvement.
Anyone’s financial investments can be bettered, by taking a young breadwinner’s financial habits and letting an expert analyse how a person can do better, plus an analysis of the negative and positive aspects of their investments.
We discussed with Sanjeev Kumar G, Founder, PrognoAdvisor.com, a SEBI registered investment advisory firm to understand the strategy a young person should adopt from financial manage-ment.
Position Analysis
Ratheesh should see that expenses do not go beyond 35 per cent of his income (now it is 32.5 per cent). His loan repayments are about 20 per cent, which is well below the desirable limit of 35 per cent. But his life insurance coverage is just Rs 3.05 lakh.
Working in a private limited company, he will not get any pension benefits and will also require life insurance cover equal to 10 times his annual salary. Apart from that he will require cover against his outstanding liabilities.
What should be done
A Rs 40 lakh term cover will cost him about Rs 9,800 per year, which is about Rs 817 per month.Traditional Life Insurance policies are not always a good idea, since the returns are not good enough to cover inflation.
Ratheesh now pays Rs 12,000 per year towards mediclaim policy, which means he has an insurance cover of Rs 3 lakh, which is good.
Goal setting
He has to set a goal for himself and needs to allocate money in investment avenues to achieve it.
Now, he is saving in post office deposits and savings bank. This is good for short term goals, but the returns are low.
He needs to only keep about 3 to 4 months expenses plus loan repayments in a bank account as an emergency fund. The rest of his assets have to be deploy in high yielding asset classes based on the time horizon of each goal and his risk tolerance ability.
He may work for another 28 years, after which he may be living until the age of 85 without regular income.
Hence, he will need to accumulate enough money in the next 28 years to help him pay for his expenses throughout the retirement period. Besides goals such as education of children should also be thought of.
He will need Rs 10 lakh in today’s value after 16 years.