5/9/2016

TheEconomicTimes
Title:RIGHTWAYSTOMANAGEFINANCIALDILEMMAS
Author:CHANDRALEKHAMUKERJI
Location:
ArticleDate:05/09/2016
Astepbystepguidetodealingwithmoney,fromyouthtooldage.
Limitedsavings,butnumerousresponsibilities.That'slifeforyou.Andsomeofthesegoalsorresponsibilitieswillrunparalleltoeachother.Forone,whileyoucan'tdelay
savingforyourretirement,youcan'taffordtoignoreyourchild'sfutureeither.Sinceincreasingyourpayorreducingexpensesbeyondalimitcan'talwaysbeanoption,we
oftenstrugglewithfinancialchoices.Wetrytofigureoutthecommonfinancialdilemmasthatyouwillfaceduringdifferentstagesoflifeandtellyouhowtomake
efficientchoicesandoptimiseyourallocation.
20sBALANCINGDEBTAGAINSTCOLLEGECHOICE
Youareprobablyeyeingacoursetohelpyouupthecorporateladder.Butifyoudonothavescholarshipandyourparentshavenotsavedenough,isitworthtakingabig
loan?
Don'tstartyourworkinglifewithamassivedebt.Defaultscouldruinyourchancesofborrowinglater,saysAnilRego,CEO,RightHorizons,aninvestmentadvisory
company.
Beconservativewhenanalysingyouremploymentpotential.Takeabasecasescenarioforsalarypackagesthatyoucanlandafterthedegree.TheEMIfortheloanshould
be50%orlowerthanthenetmonthlypay,saysArvindA.Rao,Founder,ArvindRao&Associates.Asthisisalongtermloan,evenapercentagedifferenceininterest
ratescansaveyoualotofmoney.Ratherthangoingforanunsecurededucationloanwhereyoupayahigherrateofinterest,seeifyourparentscangetyouasecuredloan
andkeepanassetasacollateral.Itmightmakesensetoworkforafewyears,savesomemoneyandthenapplyforacourse.
TIPBeconservative,TheEMIfortheloanshouldnotbemorethan50%ofthepotentialmonthlysalarythatcanbelandedafterthedegree.
30sMANAGINGHOMELOANEMIORINVESTINGINEQUITYFORCHILD
Youwouldchooseyourchild'sfutureanydayoveryourdreamhouse.Itevenmakesfinancialsensetodelaybuyingaproperty.However,adviserswarnagainstdelaying
thepurchasesomuchthatyourdebtcontinuesintoyourretirement.Afterretirement,livinginarentedaccommodationcanbestressful.Also,itisnotagoodideatoretire
withdebt,saysPriyaSunder,Director,PeakAlphaInvestment,aninvestmentadvisoryfirm.Besides,thehousecanbeacollateraltohelpyouborrowincasetheeducation
savingsfallshort.
Youcouldconsiderasmallerapartmentthatcostsless.Iftheeducationcostsareexpectedtobehigh,keepdownthecostofthepropertyandreduceEMI,saysSunder.
Or,youcanoptforSIPsoverEMIs.Forinstance,youtakeahomeloanfor`1croreforthenext20yearsat10%interest.Youwouldpayabout`1lakhinEMIeachmonth.
Over20years,theinterestcostwouldbeover`69lakh.Instead,ifyourentahousefor`30,000andinvest`70,000viaanSIPeachmonth,growingat15%overthenext20
years,thecorpuswouldbecloseto`10.5crore,andtaxfree,ifinvestedinanequityfund.Thismoneycouldfundbothgoals.
TIPBuyasmallerhouse,whichcanalsobeacollateralforacheapereducationloan.Orratherthantakingahugeloan,liveonrentanduseSIPstobuildacorpusforboth
goals.
40sCONTINUINGWITHJOBORTURNINGENTREPRENEUR
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It'sbesttotaketheplungewhenyouhavenobaggage.However,at40,youprobablywouldhaveadependentfamilyandnotbefinishedsavingforallyourgoals.You
mightalsohaveliabilitieslikehomeandcarloans.Turningentrepreneurwouldmeanputtingeverythingonthebackburnertillthenewbusinessisstable.Acomebackmay
alsonotbeeasyifyoufail.Plus,youwillbeclosertoretirement.Iftheentrepreneurutilisesallsavings,intheeventofloss,shewouldhavetostartalloveragainwithless
timeonherside,saysSrikanthBhagwat,PrincipalAdvisor,HexagonWealthAdvisors.Evenifyouturnanentrepreneur,youcan'tignorefinancialshieldssuchasterm
andhealthinsuranceforalldependents,bedebtfreeandhavesavingsofatleast12to24monthstocoverlivingexpenses.Also,itisabadideatodiluteyourinvestments
orassetsthatyoumayhaveearmarkedforothergoals(sayretirement)forinitialfunding.
TIPItisabadideatodiluteyourinvestmentsorassetsthatyoumayhaveearmarkedforothergoalsforinitialfunding.
50sCHOOSINGBETWEENCHILD'SHIGHEREDUCATIONANDRETIREMENT
Thedeadlinesofthesetwobiggoalsmaycollide.Whileneithercanbeignored,financialplannerssayyourretirementcorpusisthepriority.Yourchildcangeta
scholarshiportakealoan.However,thebankwon'textendyouacreditbecauseyoudonothavesufficientsavingspostretirement.Eveniftheydo,apersonalloanwill
alwaysbecostlierthananeducationloan.
Aneducationloancreatesasenseoffinancialresponsibilityinthechild,allowsyoutokeepyourassetsandgivesyouadditionaltaxbenefits,saysBhuvanaShreeram,
CertifiedFinancialPlanner.
Somemayargueitisbettertoworklongerandsavemorethandependonaneducationalloan.Itisnotdifficulttofindajobpost60thesedays.Plus,beingaguarantorto
abigloanwhenyoudonothaveanincomemaynotbeagoodidea,saysVivekRege,FounderandCEO,VRWealthAdvisors.
However,thereisnoguaranteethatyouwillfindemploymentpostretirement.Ontheotherhand,evenifyourchildchoosesanunconventionalcoursewhereitisdifficult
togetaloan,ifyouhavebuiltenoughassetsthatcanstandascollateral,thelenderwillsanctionthefunds,thattooatamorecompetitiverate.TIPIfyouhavebuiltenough
assets,yourchildcanalwaystakeaeducationloan,wheretheassetcanstandascollateral.
60sINVESTINGINEQUITYORINDEBTOPTIONS
Keepmovingyourinvestmentsearmarkedforretirementtowardsdebtasyounear60.However,thatshouldnotstopyoufromreinvestingyourkittyinequityoptions.
Consideringtheyareyourbestchancestobeatinflation,mostadvisersrecommendkeepingaportionofthenestegginequities.
Although,thecaseforequitiesbecomesstrongerifyouarestillearningafter60.Dependingonyourrisktakingcapacityandavailabilityoffunds,youcaninvest1525%
inequitiesviaSIPsorinhybridfundstobeatinflation.However,youshouldhaveaninvestmenthorizonofatleastfiveyears,saysPankaajMaalde,CertifiedFinancial
Planner.Addingthegrowthorientedcomponentwillentailsacrificingimmediateconsumptionofthatpartofthecorpus.Also,youcannotdependonyourequity
investmentsforyourmonthlyincomeneeds.TIPYoumaycontinueyourmonthlySIPspostretirement,providedyoudonotdependonsuchinvestmentsforyourannuity
incomeandhaveanemergencyfundinplace.

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