Skip to main content

Investing life’s savings wisely

It is always heartening to look back at the path travelled. For many of us in the 40-plus bracket, life began in the mid-eighties as management trainees, with a 'handsome' stipend of `1,200 a month. At that time, those who were ambitious expected to be earning `1lakh a month on retirement at the age of 60. But it is a completely different scenario now, and the economic liberalisation has paid a rich dividend to this generation. What are the financial planning challenges for this group?

 

First, there has been a change in spending and saving habits. While many grew up when frugality ruled, we discover at the peak of our earning career that consumption reigns. We cannot help but indulge ourselves in the best, which we believe we deserve. The generation of high earners is spending large sums on discretionary items such as travel, food, entertainment and hobbies. Some are reliving their younger years with a vengeance, by buying fancy gadgets. But keeping an eye on saving ratios should be a priority, lest spending exhausts surpluses. It is important to see that income tends to peak off before retirement, and lifestyles that become tough to sustain can hurt in the later years. Saving about 30-40 per cent of the regular income, and increasing the saving rather than the spending ratio should be the target.

Second, there is a change in life expectancy. If this generation hopes to enjoy 25-plus years of increasing income, it is also looking at 25-plus years into retirement. Thanks to healthy lifestyles, eating habits and medical care, it is likely to live long. But there is an important difference in support systems. If the earlier generations relied on their children to support them after retirement, this generation is proud of its independence, or is unable to draw on its children's resources. There would be rent and bills to pay, and medical expenses to bear in the long years into retirement. Many do not work in sectors that pay pensions. It is critical to build a large corpus that can generate an adequate retirement income. The mid-forties may represent the critical watermark, beyond which it may be late to begin to build that corpus. Only if the corpus that we have built can replace our regular income, after adjusting for inflation, are we ready to retire.

Third, there is a change in mindset towards earning and income. Several in their mid-forties have been bitten by the entrepreneurial bug, including yours truly. The urge to create and to be one's own boss is strong for many who think they have built scalable professional skills. It means drawing on savings created during the working years, living through years of low or nil income as the business is developed, and waiting for the value creation at the end of the slog. The risks to income and wealth from these ventures are high. It is important to stay realistic about your investments and returns. Unlike the past, when job markets were inflexible, today entrepreneurs are able to come back to full-time work, and are valued for their experience. The objective should be to enhance the value and return from the human asset, for as long as possible, as a core wealth enhancement strategy.

Fourth, there is an eager market to sell to the present generation. By virtue of going through a phase of prosperity, the generation is the target of sharp sellers. Sadly, many tend to be taken in by the feeling of being sought after, and fall prey to 'exclusive premium' and 'limited edition' deals. They are prone to buying houses bigger than their needs, invest in private equity deals they do not understand, choose expensive portfolio management solutions, buy exotic products such as art and pay fancy premium on insurance policies they do not need. It is important to choose a financial advisor carefully and to participate actively in the management of wealth. Without strategies that enhance and preserve wealth, this generation may end up risking the fortune they have made.

Popular posts from this blog

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

WEALTH TAX

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...

How to Pick Top Performing Mutual Fund Schemes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now