Plan your money, think for the future
We all have dreams for the future, but many of us have lost ourself in the daily grind, where future plans have gone astray and your dreams feel like a distant memory. You want to connect with your dream and make it a reality. Yet, you are overwhelmed with many feelings. Let’s look at an example.
Nisha Meghraj, a 32-year-old doctor with a thriving dermatology practice (she has two clinics on rent in Mumbai and a staff of seven), after going through her balance sheet and net worth recently, she came to the harsh realisation that her future self would need to work till 75. After due consultations, Meghraj decided to make some changes to her financial planning.
Get to know your future self:
Imagine your lifestyle and personal expenses during your retirement and put a present value to this figure. Your retirement life is usually the golden era, when you will not have dependents and still be healthy and reasonably young to pursue your interests. For example, Meghraj’s need of ₹1 lakh current monthly expenses translates into ₹3.39 lakh per month at 5% inflation and 25 years from now.
Start saving for your future self:
Depending on the tenure of investment, there will be many choices. These are solution oriented mutual funds in both equity and debt. Retirement plans issued by insurance companies are designed to provide you monthly pension benefits by purchasing annuity plans. These plans are restrictive during the retirement years since the annuity is fixed and liable to tax. You may invest in the National Pension Scheme, which is a basic pension scheme with limitations on withdrawal. You may create a basket of mutual funds – diversified large cap funds for a conservative risk appetite or mid and small cap funds for an aggressive risk appetite. The last option requires discipline on your part, but maximum flexibility and control during accumulation and withdrawal phases. For example, Meghraj will need ₹5.8 crore corpus to enable her to afford ₹3.39 lakh monthly, presuming her retirement period is 25 years. Therefore, Meghraj is required to invest ₹18,000 in an SIP assuming her returns are 15% annually. If her returns drop to 12% per annum; she will need to invest ₹30,000 in her SIP.
Consult a professional:
While your parents and relatives have the best intentions for you, what workedforthemmaynotworkforyou. There are a lot of things to consider. A professional knows how to systematically analyse the variables, and build a short and long-term financial plan sensible for you. Vet the professional advisor carefully. When you find a few, who seem capable and trustworthy, let them know the details of your current finances and what you expect to be earning over the next few years. Then ask a simple question: “What would you do if you were in my shoes?” The answer you like best is going to be from the individual who is the best choice for you.
Understand the options since your money is at stake:
Make sure to understand some of the basics like, mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds and other securities. Each unit holder, therefore, participates proportionally in gains or losses of the fund. Mutual funds are operated by professional money managers, who allocate the fund’s investments and attempt to produce capital gains and/or income for the fund’s investors. They are usually diversified, transparent and regulated by SEBI.
Review your plan once in 3 years:
You are steadily becoming your future self. Hence, you should take stock of your changed financial situation and evaluate your investments every now and then. Don’t do this too often. Strategic decisions taken once every 3 years should do the trick.
Nisreen Mamaji is a certified financial planner and founder of Moneyworks Financial Advisors.