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Investment Planning

Investment Planning involves three main objective Wealth Creation, Child’s Future and Retirement Planning, all the reason we plan to save or invest will come in the above mentioned reason. We try to illustrate everything with a example of Mr.Sam who started his career and how he should live the rest of life till he enters retirement.

How to Plan your Investments?

Stage 1 – Wealth Creation & Retirement Planning

Consider Mr.Sam aged 23 a Engineering Graduate got his first job in a firm which pay him 25,000 as a monthly proofread my paper salary, since he is staying away from his home he spends 4,000 towards his room rent, 6,000 towards food including weekend spending in a good restaurant, sends 5,000 for his parents and life style expense of 2,500 totaling15,000.

If the remaining 7,500 is not invested he is more likely to spend that money towards food or life style expense because you cannot buy anything productive with 7,500 if that money is invested in a year he will save 90,000 in 5yr he will save 4,50,000.

Allocating 5,000 towards wealth creation and 2,500 towards retirement planning he makes a solid foundation for his financial future. Investment made towards wealth creation will be 4,50,000 in 5 years with 15% CAGR, don’t touch your investments made towards retirement planning for any reason.

Assets in Wealth Creation could be used towards buying a car or buying a household needs or using it towards marriage expense.

Probable Mistakes buying a car that cost more than 8lakh or using entire money towards marriage expense & during the investment period redeeming the money for managing expenses or buying any products that depreciates over a period of time. Worst mistake find sigmaessays essay writer for your best essay writing services activity will be touching your investments made towards retirement.

Insurance Needed at this stage Health & Accidental Insurance

Stage 2 – Wealth Creation & Retirement Planning

Now at the age of 29 Mr.Sam’s salary would have been 32,000 with assumption of 5% hike every year, at this stage he is married and living in an individual house with his spouse. There are 2 options either she might be working or might not, if she is working then you have the advantage of additional income which will enable you to improve your life standards and savings and if she is not then you have a person to manage your home and your needs in much efficient way.

Consider she is working with a salary of 25,000 so total incomes of 57,000 now you stay in a house with a rent of 10,000, your food and living expense will be around 12,000, your life style expense including vehicle EMI is 15,000 leaving you with a surplus of 20,000

Allocate 15,000 towards wealth creation and 5,000 towards retirement planning; continue this until you add a member to your family.

Probable Mistakes at this stage will be redeeming the 2yr old investments without giving time for your investments and redeeming your 2yr old investments towards buying household needs or closing your auto loan.

Insurance Needed at this stage Life Health & Accidental Insurance

Stage 3 – Wealth Creation, Child’s Future & Retirement Planning

This is a stage where you start investing for 3 reasons Wealth creation, Child’s Future and Retirement Planning.

Assume Mr.Sam is blessed with a kid 2yrs after marriage, when you are 31yr you will become a father and you will be earning a salary of 35,000. After birth your expenses increases and there is a chance your spouse might give up her job depending on the family situation, in a situation like this your savings will provide a backup and confidence for 1 or 2yrs till you can manage your kid with a nanny.

If she is not working allocate your salary of 35,000 with 10,000 towards rent, 10,000 towards food and living expense, 5,000 towards vehicle expense, 3,000 towards kid’s need leaving a surplus of 7,000. Allocate 2,500 towards wealth creation, 2,500 towards Child’s future and 2,000 towards retirement planning. In order to manage your expense with single income you need to compromise your lifestyle expense for 1 or 2yrs till your wife starts working.

Once your wife start’s working allocate your surplus towards investments as follows 30% towards Wealth Creation, 40% towards Child’s Future & 30% towards Retirement Planning.

This is the period where you have to define your investments wisely depending on your family condition say if you could get any support (any asset you receive from partition) from your family or your spouse family in buying a house you can consider buying provided you have 40% of the project cost funded by you and for remaining you can go for a loan.

Things to be consider while buying a House

  1. Buy a property 5 times of your annual income, if the joint income of Mr.Sam and spouse is 7,50,000 annually buy a property worth 37-40lakh.
  2. Have 40% of the Home cost funded by you, Mr.Sam who wants to buy a house worth 40lakh should have at least 16lakh in his hand, if then by taking a home loan for 24lakh EMI will be around 25,000 which is manageable from Rent and Investment allocation towards Wealth Creation.

Probable Mistakes will be spending too much on interiors of the house beyond your budget and buying a house worth more than 5times of your annual income.

Insurance Needed at this stage Life Health & Accidental Insurance

Stage 4 – Child’s Future & Retirement Planning

In this stage assuming it will be in the age of around 38-46yrs you will be more concerned about your Child’s future, so your maximum time and earning should be allocated towards Child’s upbringing. Allocate 60% of your Investment surplus towards Child’s Future and remaining towards Retirement planning.

Have at least 3times of your salary as a backup as this is the period you make lot of career advances which will be very stressful for a while, only with a proper financial backup you will be able to succeed in your life.

Things to be followed in this period

Engage with your kid’s, you need to listen to whatever they are saying, research says if parents listen to whatever they want to say between ages 4-13yrs they reciprocate for rest of their life.

Don’t spend too much on changing your gadgets.

Probable Mistake will be making any spending decision in haste; most likely this will be the most stressful period of your financial life. Don’t take any decision without consulting experts. Don’t redeem any money that is allocated towards Child’s future and Retirement planning

Insurance Needed at this stage Life Health & Accidental Insurance

Stage 5 – Child’s Future & Retirement Planning

This stage is the final stage for planning your child’s future as your kid steps into the final stages of School Education and entering Higher Education which will determine the future of his life. This is probably the stage where you will be completing your long term commitment Home loan.

Don’t make any much change in your existing investment allocation, any bonus you received should be invested in any asset class with zero risk and easy liquidity and all the investment made in risky asset classes should be switched to risk free assets when you are nearing the big commitment.

Make a decision on what your Kid wants to become and decide where to study depending on your affordability; every career has international education option depending on how much you can afford for your kid’s higher education you can choose where you want to study.

Probable Mistakes is putting so much stress on your kid and seeking advice on where to study from somebody who doesn’t have much expertise in that field.

Insurance Needed at this stage Life Health & Accidental Insurance

Stage 6 – Retirement Planning

After completing your home loan and giving an education that your child wants almost all your commitments is over so you can enter your retirement peacefully. This is the final stage of your financial planning with almost 25yrs of professional life lived with proper financial ethics as mentioned in the early stages will know what to do and what not.

Probable Mistake will be giving away your earnings to your kid more than they deserve.

Insurance Needed at this stage Health Insurance

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