THESE ARE THE GOLDEN SAVING YEARS

Financial planner Gaurav Mashruwala says that when you are young, you can set the ball rolling

 Different individuals may happen to influence our lives at different points in time. In the case of 27-year-old Vijay Das, it was the father of his childhood friend who exposed him to money management. The friend's father was working for a bank. Now, Vijay's family was of modest means and did not have much financial acumen. Savings and investments were haphazard.
This led to a situation where the family had to borrow to fund Vijay's higher education. His friend's father discussed with him his savings and investment strategies. Gradually, over a period of time, the family managed to create sufficient savings to meet many of its responsibilities. Even now, Vijay refers back to him when in doubt.
    Vijay has a master's in computer application and works for a company in Pune. Back home in Chhatisgarh are his parents, younger brother and sister.
WHAT IS HE SAVING FOR? (1) Purchase of a house in Pune within a decade, Rs 30 lakhs (2) Once he has a family, Rs 1 lakh for the children's education and Rs 8 lakhs for their marriage. (3) Rs 1 lakh to meet any contingency related to his parents (4) Lastly, Rs 75 lakhs for retirement. All costs are at today's rate of inflation.
WHERE IS HE TODAY?
Cash flow: Total yearly inflow is Rs 3.43 lakhs. This is from salary, bonus and interest. Outflow is Rs 1.93 lakh, towards routine expenses, insurance premium, rent and entertainment.
Net worth: Total assets are worth Rs 1.10 lakhs. Of this, Rs 60,000 is the value of his bike and the rest is invested assets.
Contingency fund: Mandatory monthly expenses are about Rs 16,000. Approximately Rs 45,000 is placed in a savings bank and a fixed
deposit. This is about 2.80 months' expenses
Health & life insurance: His employer covers Vijay upto Rs 2 lakhs of health expenses. Total life cover is Rs 22.50 lakhs. Of this, his term plan is worth Rs 15 lakhs.
Savings & investment: The balance in his savings bank is Rs 10,000, fixed deposit Rs 35,000. PPF balance is Rs 5,000.
FISCAL ANALYSIS: On an income of Rs 3.43 lakhs, there is a surplus of Rs 1.50 lakhs. However, this is not yet being translated into wealth. There is no borrowing. Health insurance is sufficient but should be increased. Life insurance is currently enough, but should be increased over a period of time. Since most goals are long term, more focus should be on equity as an asset class.
WAY AHEAD:
Contingency fund: Increase contingency fund to Rs 50,000.
Health & life insurance: Ideally, purchase additional health cover worth Rs 3 lakhs. Also, enhance life cover through term plans to Rs 35 lakhs.
SAVINGS & INVESTMENTS:
Parental responsibility: For the next one year, start a recurring deposit in a post office scheme or with a nationalized bank, putting in Rs 8,000 per month. This corpus later should be parked in a fixed deposit linked to a savings account to meet contingencies related to parental needs.
House: Instead of waiting for a decade and paying rent on current premises, borrow funds to purchase a house. It is always prudent to pay EMI rather than rent.
Children's needs and retirement: All these goals are more than decade or two away. Once home buying is settled, start systematic investment plan and index fund.
Tax: The entire benefit under section 80-C is not being claimed. However, repayment of principal amount of home loan will entail benefit under 80-C
PLANNER'S EYE
    One's 20s and 30s are the 'golden saving years'. These are years where even though income is low, expenses are well within control. For example, in the case of Vijay Das, on his total income of Rs 3.43 lakhs, almost 43% of his income is being saved. As age increases, income increases, but expenses also keep pace. In his mid to late 30s, he will have a home EMI, followed by expenses related to his children's education. In his mid to late 40s, expenses related to elderly parents and children's higher education come up and in the early 50s, it is children's marriage etc. Soon, we are just a decade away from retirement. Further, in the 20s and 30s, many goals are more than a decade away and hence investing in highrisk avenues is possible. While you must enjoy your new-found financial freedom in your 20s and 30s, you have to keep an eye on long term goals as well.