Pavithra and Vinoth were a young couple with lots of hopes and dreams in life. They had been married for a little more than a year. When Pavithra and Vinoth met us for a financial planning session, they had no clue about managing their expenses.

Vinoth and Pavithra were comfortable with their employment. Vinoth was working in a management consultancy firm and Pavithra in a manufacturing firm.

Cash flow position (₹)

Goals

Based on the discussion and their plans, we helped them identify their goals, which they were not clear about. Being young, they had not thought about their long-term goals.

The following goals were identified and prioritised. We advised the couple to set up an emergency fund of ₹3,81,000 (six months of living expenses). Also, we recommended that they address short-term expenses such as pregnancy-related costs, events, and baby birth-related expenses of ₹1 lakh. Besides, they had to think about medium-term expenses such as foreign vacation, buying a car for Pavithra and preparing for the child’s school admission. Then, we suggested that they think about setting up a corpus for the upfront payment towards house purchase in the next five years. The couple felt this was not an immediate need and had relatively less clarity on this goal. Other key long-term goals included children’s college education, retirement, wealth creation, post-retirement health funding and charity.

Measured approach

Vinoth

and Pavithra did not understand many financial products. They were confused by not-too-complex terminologies and found them to be financial jargon. But they wanted to earn higher returns than conventional savings. A discussion on equities and their prior reading of a few articles led them to choose investing in equities for their long-term goals.

We assessed their risk profile as Balanced and advised the couple to opt for equity investing only for their long-term goals, primarily because we felt they had a lot of perceptions that may change during the investment journey. As we found that they were relatively unaware of many products, we advised them to fund their short-term goals with fixed income products, with more certainty.

As a first step, they were advised to protect their personal finance portfolio with an emergency fund.

Though both have health insurance through their employer, we advised them to opt for a private health cover of ₹5 lakh through a family floater policy.

We also advised both Vinoth and Pavithra to opt for life cover by way of a pure term insurance, for a sum assured of ₹1 crore and ₹50 lakh respectively.

Tracking expenses

It was difficult to convince them to track their expenses, a problem typical to at least 40-50 per cent of young couples in our experience. After a long discussion, they understood the importance of keeping track of expenses. They realised that it would help them identify their needs and wants and prioritise their expenses in the short to medium term. Buying gadgets and electronic items are part of lifestyle needs these days, which can potentially wipe out a year’s savings, if not planned well in advance. Knowing monthly and annual surplus would help the couple plan their purchases as they were in the process of building their home and life.

Financial position (₹)

Savings and investment plan (₹)

For a couple with no real clarity on their future goals, this exercise gave them lot of thinking to do. They had taken comfort for granted based on their prevailing conditions which was not a bad thing per se . But getting oneself prepared for the long haul in life by shielding against unforeseen challenges and preparing for financial goals from an early age were well appreciated by the couple after the exercise was completed. It was heartening to see a young couple, who were casual with their lives, respond to the planning exercise by moving from reluctance in the beginning, to enthusiasm and vigour towards the end of the exercise. Financial Planning is your road map to certainty by gradually eliminating uncertainty by asking a lot of questions about your own lives.

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

Tracking pays off

Keeping track of expenses can help identify needs and wants, and fine-tune the spending pattern

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