Now we have fair idea on your purpose and factors to consider while determining the profile. Still, let’s check out how 2 imaginary persons getting started with their financial plan. For academic reasons, lets call them Ramesh and Suresh. We created a mock assessment sheet to cover all the information that we have spoken so far.
Suresh – Young adrenaline junkie getting started
Suresh is a young energetic person. He is an adrenaline junkie and loves trekking rugged terrains of Himalayas. He is not into materialistic possession and believes that experiences are more important than buying a house or car. This was his assessment sheet.
It is quite evident that Suresh is very clear in his goals. With this current savings plan, he should have no problem in achieving his goals provided he ensures that he invests and allocates his savings efficiently. The key here is to ensure that he guarantees 10% p.a return on his investment! Since all his goals are atleast 5 years later, he can afford to invest in equity.
Plan of action:
Stay the course and keep investing in equities at an aggressive rate to meet the goals
Ramesh – Family man getting started
Ramesh is a very affable person. He is a dedicated and hard working person, appreciated by everyone in office. After he married, he chose to splurge on a new car. He made a marginal down payment and applied loan for the rest. Since he spent for his wedding he was a bit low on savings and was paying out EMI.
Looking at his profile, it was very scary that in spite of having 3 dependents, he has chosen not to have insurance. That should be his first expense to ensure protection to his family in case of any untoward happening. His cash equivalent is also very low; he should ensure that he plans improving it to have 6 months’ worth funds in it
Now as we can see, both will take quite a bit of time because of his impulse buying of car. More than 40% of his income is going on EMI. It is very important that he steady his necessities before he can go to goals. Immediate focus must on pre closing the loan, setting up insurance and emergency fund.
Reviewing his goals, one cannot postpone the money needed for education as we cannot modify child’s college entry time. So, he must funnel his savings towards child’s college education, which means he has to either invest more (salary increase or passive income) or push the target date of buying a house by few years. Also, he has also not thought about retirement yet. He must start putting up some money for retirement to enjoy the exposure to compounding.
Plan of action:
Buy insurance products. Focus on saving up for his child’s education, postpone his housing plan and start plan for life of retirement. Maintain healthy exposure in equity as the goals are long term
Disclaimer: Both are nothing but imaginary profile used for illustrating how you can decide you suitable plan of action. Ensure you have a holistic picture of your entire life before you can come up with an investment plan.