Personal Finance

An investment plan for a young couple

Sridevi Ganesh | Updated on November 15, 2019 Published on November 14, 2019

The young generation is very aspirational and want to pursue their dreams   -  istock/diego_cervo

Big dreams have to be backed up with realistic plans

Arun and Nithya came to meet us for their financial planning. Arun (29) and Nithya (27) got married recently and were planning to start their own venture in food processing.

They had three broad goals. One, they wanted to start an MSME food processing unit in 2020. The estimated cost for this was around ₹40,00,000, for which Arun and Nithya had the financial sources. Arun also wanted to have an additional fall-back fund of ₹3,00,000.

Next, they wanted to buy a car immediately, the cost of which was ₹9,00,000. Third, they wanted to go on a vacation after a year; this was expected to cost ₹3,00,000.

Nithya was to continue working in a company and Arun was likely to take care of the business. Nithya wanted to join the business after three years.

 

Arun was not optimistic of sharing the family expenses for 2020. He wanted to be free from that burden. Hence, the surplus for the year after was quite unpredictable.

The couple were confident of managing expenses for a year out of Nithya’s income. Given that they were already a bit stretched with their current goals, we advised them not to get committed to any further expenses until Arun was in a position to share family expenses again.

We recommended the following measures to Arun and Nithya. To start with, their fixed deposits worth ₹2,50,000 was to be earmarked as their emergency fund. Next, they should opt for health insurance for a sum insured of ₹5,00,000 immediately. Also, they should take pure term insurance for a sum assured of ₹50,00,000 each.

 

 

 

The car purchase should be funded with their cash in hand and the expected saving accumulations. The cost for this goal needed to be managed with funds available by next year. We advised them not to opt for any car loan, and suggested that they restrict the car purchase budget to ₹6,00,000. The car purchase will reduce their surplus in hand and will also mean additional expenses.

They had to plan their cash flow accordingly. Their monthly savings of about ₹20,000 can be used to fund their vacation plan.

Rejig of MF portfolio

We recommended a rejig of the mutual fund portfolio so that Arun could use around ₹3,00,000 towards the business start-up fall-back fund.

Though this looked like a simple straight forward plan, much time was spent understanding the rationale behind the couple’s goals, their priorities and their views on life, income and expenses. The young generation is very aspirational and, whether funds are available or not, they want to pursue their dreams, which by no measure are mean ones.

They are chasing big dreams and the pace at which they want to scale up is influenced by trends in developed countries to a large extent.

Though as planners we appreciate a few aspects, we felt that more caution could be exercised and it was explaining this aspect that took a lot of time.

Their perception about savings and investing for long-term goals, and building it brick by brick had to be changed. It was good to see that they were demonstrating a willingness to learn new ideas about managing money. To sum up, more than numbers, this plan was more about emotional management and drafting thresholds for emotions associated with one goal or another.

The writer is a SEBI-registered investment advisor at Chamomile Investment Consultants

Published on November 14, 2019
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