I Know that I’m an Amateur and you won’t take my advice on this particular topic of Financial Planning. Hence it’s better to go with experts opinion than mine.
Following is the Financial Planning Advice based on an interview with Neil Borota by Groww.
Individual Persona: Engineer, 26 Years, Salary (70k – 80k INR), Stays in Tier II City, Unmarried, Not Many Responsibilities.
How much amount to be spent on Rent?
It is a Rule of Thumb that Rent should not be more than 25% of individual’s Salary. But instead of rent, if EMI is being paid on a house, then the EMI can be up to 1/3rd of Salary.
One should rent a house or buy a house?
By buying you will get locked to that Geographical Area. So it’s entirely upon ones choice, since it’s a long term investment decision. An Additional House will come with extra bills like maintenance. From investment point of view, there are alternative options like Mutual Funds and Stocks which can yield much better return.
Is Life Insurance and Health Insurance Required?
If one have no dependents, then there is no reason to buy life insurance, premium will get wasted. Even if there are dependents term insurance (won’t pays any fixed amount after some time if you’re not expired) must be preferred, the cost for this is very much less. The insurance that Insurance Agents normally sell is called endowment insurance (where you receive money after a certain period even if you’re not expired) and the premium for such policies is very much high, if compared to the cover you will get in both types.
And Health Insurance, it’s better have one policy of your own apart from the one provided at work. Because, in case if you lose the job, you will no longer covered and it can put you into financial hardships.
The main funda of having an Insurance is you don’t want to risk everything of your wealth for an uncertain event and pay a small premium for it and sleep like a baby at night.
What is the Rule of Thumb for Saving Salary?
It depends on your salary and what your goals are. Since we are talking about Rule of Thumb, it must be a minimum of 25% of Salary. Since, we don’t have a luxury of pension as people used to have, we have to set something set aside for that at least.
Invest in FDs or Stocks (includes Mutual Funds)?
It’s totally based on your risk appetite. But one thing is FDs can’t beat the inflation at your 50s, when you’re constantly withdrawing fixed money from the investment.
What is the Rule of Thumb for taking Car Loan?
Rule of Thumb if you are taking a Car Loan is EMI should not be more than 10% of Salary and EMI should not be for more than 4 Years.
Simple Wedding or Fat Indian Wedding?
If taking a loan, EMI should not be more than 10% of your Salary.
Should I need to hire a Financial Advisor?
Ideally (as in Developed Countries), one should. But in India it so happens that (due to the scarcity of Financial Advisors), your Bank’s Relationship Manager, Mutual Fund Distributor, Insurance Agent, etc., provide investment advice with a bias towards their own goals mostly. Since you’re in the internet age, you can learn and invest by yourself if you have time.
Other alternatives to Mutual Fund houses?
Smallcase (Min. Investment based on the Portfolio chosen) and Portfolio Management Service (50 Lakh Min. Investment). Taxes are present during buying and selling. Risks are higher compared to Mutual Fund houses, since made of a concentrated portfolio. And there will be extra fees and profit sharing (in case of PMS). Mutual Funds are much regulated, can’t invest more than 10% in any one stock, can’t charge much fee.
Opinion on Crypto Trading?
Not viable at the moment in India. Being Taxed on Principal as well the Returns for Transactions.
How do You plan your finances? Do let me know in the comments below!