Find an investing opportunity every 60 seconds!
Get SMS to get the App Link
Tap here to access menu...
Tap here to Pull quick market snapshot...
Tap here to open an account...
Welcome to our brand new version...
Download our
RING Mobile App NOW!
Advantage AxisDirect
Quotes
Back To Menu
Dec 27, 2019 | Source: AxisDirect-O-Nomics
The views and opinions expressed are of Mr. Arun Thukral, MD & CEO, Axis Securities.
Every twentysomething feels a sense of excitement and nervousness as she/he enters the new and challenging phase of her/his life- the first job. From earning no money to coming home with a paycheck, a major shift happens in your lifestyle once you start working. To ensure that your first job becomes the stepping stone for your overall prosperity, it is essential to carefully manage not only your career moves but also your finances.
A steady income gives you the power of making an early start to your financial journey. By carefully charting the course of this journey, you can build a healthy corpus of funds to achieve your bigger life goals while enjoying a comfortable lifestyle. As the end of the year approaches, there can be not a more opportune time to check your financial health by taking a stock of the hits and misses in your financial planning this year.
Below is a simple test that will help you gauge your overall financial health. Add 2 points to your score for each healthy financial habit and deduct 4 points for every miss in your financial planning. Your final score will also help you to identify measures that you must undertake in the coming year to fulfill your dream of building a financially secured future.
Financial Goals
The importance of a clear-cut plan to get closer to your life goals cannot be undermined. Setting clear milestones and assessing your financial performance vis-à-vis these milestones at regular intervals will help you to build long-term financial prosperity. Life goals can be divided into short-term (vacation, further education), medium-term (marriage, home) and long-term (retirement). Decide the amount you would need to fulfil each goal and use any of the available online calculators to arrive at the figure that you must save every month to achieve these goals in a time-bound manner. This goal setting exercise will let you analyze if your financial habits are taking you closer to your targets or signaling a need for course correction. If you have already charted your goals, add 2 points to your score. However, if you think that you are too young and have your life ahead to think about financial planning, immediately deduct 4 points from your score.
Money Management
Deciding the amount that you must save every month for realizing your goals will motivate you to monitor and manage your resources more carefully. Keeping a tab on your monetary inflows and outflows will help you to ensure that you are curtailing all unnecessary expenses and channelizing just the right amount towards savings. Aim to save at least 20-25% of your income every month. As soon as you get your salary, immediately set the amount that you resolved to save aside. Use the remaining sum for your fixed expenses (like rent, bills and loan payments) and discretionary spends (like shopping, movies and parties). If you are using this or any other method to monitor your money while saving the right amount, give yourself +2. If you are yet to start this exercise, assign -4 to your score.
Smart investments
Saving regularly is the job half done. Investing your savings in growth instruments is essential to make your money work for you. While as a thumb rule you must allocate a percentage of funds equal to 100 minus your age to equities, at twentysomething you can have a higher proportion of this asset-class in your portfolio. Equity has historically offered around 15-16% CAGR over 15-20 year time period and is the best investment tool for medium to long-term goals like marriage, buying a house and retirement. You can also explore SIP route for investing in mutual funds and equities. Regular investments via SIP will not only bring the much needed disciple in your approach but will also make the magic of compounding work for you. To give you a perspective, a small SIP of Rs. 1000 per month in an equity mutual fund that offers about 12% annual returns would give you a corpus of Rs. 35.3 lakhs at the end 30 years. SIP is also an excellent way to plan for a comfortable retirement and should be a part of everyone’s financial plan. Options such as liquid/debt instruments and fixed deposits should be considered to build a corpus of funds for short-term needs. You can also include gold in the Electronic form or ETFs to diversify your portfolio. Give yourself a score of +2 if you have initiated the process of investing your savings in the right instruments and a score of -4 if not.
Right Advice
Just because a particular asset-mix worked for your friend or colleague does not mean that the same will be the right one for you as well. To achieve an asset allocation that aligns with your goals and requirements, make efforts for gaining requisite inputs. Read up on financial markets and learn various financial concepts from qualified experts to reap greater benefits. If you have been relying on investment tips from your friends and relatives without doing any research at your end, deduct 4 points from your score. However, conducting due diligence while investing earns you 2 points.
Contingency Strategy
Life may not always go as planned but preparing for various possible life events can help you to better manage them financially. To meet uncertain events like loss of job or medical emergency, you must build up a contingency fund which should be separate from investments for anticipated events like marriage or retirement. To build a contingency fund, you can give an auto instruction to direct a certain sum from your salary account every month to a recurring deposit which will lock in your money for a fixed time frame. You can also invest in instruments such as short-term debt funds or liquid funds to earn higher returns without compromising on liquidity. Health and life insurance should also be a part of your financial plans. A term policy for life cover and mediclaim policy for health should also be incorporated into your portfolio. Providing for contingencies will earn you 2 points on your financial health score and absence of the same would lead to a deduction of 4 points.
Tax Planning
In the excitement of getting your steady stream of cash flows, do not overlook the need for tax planning. Understand your tax structure thoroughly as it impacts your take-home package. Knowledge of various heads and benefits that you can claim will help you to minimize the impact of taxation. You can also fashion your investment choices based on which instruments will help you to save more and pay fewer taxes. Add 2 points to your financial score if you are planning your finances to minimize your tax burden, and deduct 4 points if you are ignoring tax planning.
Debt Trap
While it is ideal to refrain from loan products, as they restrict your financial freedom, it may not always be possible. In case you need to avail a loan, always go for the term loan and try to get rid of the same at the earliest. Try not to delay payment of your loan installments as late payment fees may trap you into a vicious circle of ballooning debt. The same is applicable to credit card transactions. High-interest on loan installments and credit card transactions can create a debt trap where individuals at times apply for top-ups or fresh loans to repay the existing ones. You can set up calendar alerts to ensure that you do not miss the due dates. If you have to prioritize your loan repayments, start by paying off the highest interest loans (usually a credit card), and then work your way down to the lower interest ones. If you are caught in the debt trap, deduct 4 points from your financial score. Careful financial planning to avoid this trap will get you a score of +2.
Bonus Payout
The first temptation on getting a bonus or a raise is generally to go for that exotic holiday or to buy that new gadget. However, the wise thing to do would be to resist this temptation. Some indulgence is only human and should be financed only after equally allocating your increment to expenses and savings. Remember that indulging in discretionary spends from your bonus might give you immediate satisfaction, but investing this amount will definitely help you to achieve long-term financial well-being. If you have managed your bonus payout smartly, add 2 points to your score and deduct 4 points if you missed doing the same.
By analyzing your overall score at the end of this exercise, you can get a clear picture of your financial well-being.
Score |
What it means in your financial journey |
+ 12 to +16 |
Keep it up! You are on the right track to building long-term financial wealth. |
+ 2 to +10 |
While you are doing well, there is still some scope for improvement. |
0 to -8 |
This is a wakeup call for you. Your negative financial habits are tilting the balance and if unchecked, they will throw you off the course soon. |
-10 to -26 |
Your financial health is fast deteriorating. You must take help from professionals to restore your financial health. |
-28 to -32 |
This is a major red flag with your financial health in complete distress. You must let a professional manage your money for you as your financial decisions have let your situation go out of hand. |
Financial Planning
SIP
Equity
Investment plans
AxisDirect-O-Nomics