Promises to keep this year

A new year starts with a whole lot of promises. When it comes to financial resolutions, “I will save more, invest wisely and borrow sparingly” is common. But the earnestness to stick to your resolution in the beginning often gets gradually replaced by laxity.

“The best financial advice this year is the same as the last year. Plan ahead and avoid ad hoc investments, especially for tax-saving purposes,” says Kartik Jhaveri, director, Transcend Consulting. Also, do not get swayed by fancy and expensive products. On the borrowing and spending front, even if driven by necessity, stay astute, advises Jhaveri. Take tips from these families:

 

For 30-year-old Sushrut Chitale, expenses have shot up since he got married, a year before. “Most of the first year of marriage was spent analysing how the outflow was rising,” admits the chartered accountant. Wife Ashwini is still studying and will only contribute to family earnings after three years. In addition, being self-employed means fluctuations in the monthly income. He wants to start prepaying the home loan he had taken for a property investment in Pune, save for an annual vacation and, importantly, buy a term plan.

But financial planners feel he should first focus on funding his wife’s education. Once both are earning, prepayment can be done faster. Expenses also need to be controlled. “Lifestyle expenses for this profile (double income, no kids) tend to be high. The most important resolution at this age must be to be thrifty, and concentrate on building an investment portfolio,” says Ganesh Shanbhag, certified financial planner.

On the other hand, 45-year-old Srikrishna Bhagwat is quite satisfied with his investment planning. The engineering project consultant and his wife Swati want to concentrate on diversifying and keep the investment portfolio safe. The best part is that they are debt free. However, they need to make investment for their children — Shreyasi, 17, and Prateek, 12 — to further their education. No wonder, their financial resolutions centre around these priorities.

Since the couple has started to save for the daughter’s education, some aggression is definitely required. If they want to diversify into commodities, they should only look at precious metals.

“Debt should not always be looked down upon. For instance, Bhagwat could have considered taking a housing loan to buy a second property. It would have let him create an asset and provided a steady income in the twilight years,” says Nirav Panchmatia, founder and director, AUM Financial Advisors.

Rajendra and Sheela Patil’s son Kaustabh will start going to college this year. And, although the couple has built a considerable corpus for his education, they feel they might need more, due to the rising cost of education. They are also looking at a vacation this year. And, they want to start looking for a cosy farmhouse for retirement.

Since Sheela has prior experience in stocks — having worked with the National Stock Exchange — the couple wants to invest aggressively in direct equities.

For someone like the Patil’s, who prefer direct equity investments over mutual funds, it is imperative to track the market routinely. The corpus for a vacation can be raised by booking profits regularly in their stock portfolio. Also, the farmhouse can wait. Instead, they should concentrate on creating a retirement corpus.

“Few realise that a farmhouse is a dead investment and does not generate any cash flows. Hence, buying a farmhouse on borrowed funds is not advisable. Consider purchasing a property in a smaller city, which has the potential to generate additional income,” says Shanbhag.

Planning Ahead