Young and wise

It’s been just a few years since you became a full-time professional earning a handsome salary. And that new-found earning power that swells your purse is intoxicating, for sure. But how wisely are you handling the money flowing your way?

Portfolio sounded out a few youngsters, less than five years into their job, and this is what they said.

The cost of living in a metropolitan city pinches the pocket for most. The people interviewed agreed that close to 50 per cent of their disposable income is spent on accommodation and food. With most of them living away from home, these expenses are a major drain on their purses.

Not surprisingly, most working people, be it in India or abroad, think that sharing apartment space and cooking on their own help save substantially on rent and food costs.

Shivani Varma, a software engineer from Delhi, says “I worked in Mumbai during my initial two years. I shared my apartment with a couple of friends. Even then, the house rent accounted for nearly 40 per cent of my salary while another 10-15 per cent was spent on food. Add to this some weekend entertainment and shopping with friends and you could say I saved only 30 per cent of my salary. But after I moved to Delhi over the last one year and started living with my parents, my savings have risen considerably.”

With increasing purchasing power, these youngsters are keen to jump onto the bandwagon of urban consumption. But, at the same time, the younger workforce is savvy about its priorities, for instance, higher education.

Ramanan K, working in Canada, who just finished his Masters in Business Administration, says “I decided to do an overseas MBA the moment I started working after my under-graduation. I managed to save close to four years of my salary while working in India. Those savings took care of my living expenses while I studied abroad.”

Portfolio was pleasantly surprised to find the youngsters pretty savvy about their needs. Almost all of them stressed long-term investment and asset creation.

Not just that, today’s youngsters are keen to pay off education loans, often availed at high interest rates, at the earliest.

Ramanan says, “I have taken 50 per cent of my education loan from India while the other half is from Canada. Owing to the high interest rate, I intend to prepay my loan availed from India in the next two to three years. In the meanwhile, I intend to have nothing other than six months of liquidity for my own emergency purpose.”

Abhijit Rajan, a telecom engineer working with a communication major in the US, says, “I finished my masters a year back. After a down payment for a car, which is an essential here, I went all out to pay off my loan back in India. I pay close to 60 per cent of my monthly salary for loan repayment.”

Their investment choices range from the simple — residential purchase — to the ambitious — equity investment in a start-up.

“I already invest in a systematic investment plan. In the future I intend to buy a residential apartment,” says Shivani.

“I will increase investment in my company’s stocks. Also, I want to invest more in the US market. A few years down the line, I would like to invest in India’s real estate and stock market,” declares Abhijit.

“Going ahead, I intend to invest in the stock market in Canada. I am also interested in entrepreneurial pursuits in the long run. I and my friends are exploring how we can invest in start-ups in India from Canada,” adds Ramanan

Youngsters starting their professional career are, quite naturally, torn between wanting to splurge new-earned money — and saving. Here’s advice from an expert on the course to follow. Ankur Kapur, Director, Ankur Kapur Advisory, says “A 20-30 per cent savings from the disposable income for someone fresh into the workforce is a very healthy sign. Generally, it is only people who don’t have any clear objective who start spending lavishly their new-earned money.”

But if you have a clear objective, for instance, higher education, then channelling the money becomes more focussed. Youngsters planning higher education should invest in a safe short-term asset.

Loans and liquidity involve subjective judgements.

“Be logical about your loan. If it helps avail tax benefits, make your decisions accordingly. Also, three to six months liquidity for emergency purpose should be good enough” says Kapur.

While saving and investing are important, it is equally vital how investment decisions are made to create a strong long-term portfolio.

“Indians, both resident as well as NRI, seem to consider real estate investment as the most important. They always start investing first in real estate. This mindset should change. Indians should make sure that they start investing in liquid assets first rather than locking their investments in illiquid real estate. People living abroad should sound out professional advisers. Their country of final residence after retirement should take priority for any investment decision,” adds Kapur.

Kapur is also averse to taking risky investment decision at a young age before the youngsters have a sizable sum of ₹4-5 crore as their individual net worth.

“Only individuals who may not feel the pinch even if they lose their entire investments should invest in private equity or start-ups,” adds Kapur.

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