Finance for Young Techies

By
Hemant Beniwal
29

... You understand stack overflow, fails to understand compound interest.

Two interesting things happened in Kaun Banega Crorepati (KBC), last year one guy won 1 crore and lost at the next question. Second, Sushil Kumar won Rs 5 Crore but you can imagine he must be clueless about what to do with this money.

And yeah, you might want to pity on the first guy who lost at the last question, but wait, if you are going unplanned you should pity yourself more. There is tons of opportunity that you have lost already, and the time to act is now. ….. without participating in Bigg Boss or KBC.

Finance for Young Techies

Image: Shweta Tiwari won Big Boss 1 crore, had no idea what to do with it – so her interview with a financial planner was shown live on TV.

Here are some acting points for a basic idea of what to do

1. Employee Provident Fund:

EPF is an investment for your retirement, do not cut it. Not only it gets tax exemption, gives a guaranteed return on maturity, is far safe. You can also open a PPF (Public Provident Fund) account – this is best debt investments.

2. Insurance with Term Plan:

Who will cry if you die tonight? Well, may be many tonight! But if you are not insured or under insured may be your dependents will cry for a very long period.

The thing to understand with insurance is, it’s not an investment, it’s a well, insurance. Like a car/bike insurance, if you have paid some money this year as your vehicle insurance and it is not stolen, do you get a return on your insurance money? No. What instead you get is peace of mind, when parking your vehicle.

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Same applies to life or medical insurance, term plans, you pay for the insurance for the peace of mind of knowing that even though you would be irreplaceable, your dependents will get sufficient income to continue living the same standard.

It’s also advised now to take Medical and Accidental Insurance and not just term insurance.

3. Don’t Mix Insurance and Investment

Stay far away from ULIP or Endowment Plan, insurance linked investment. They are horrible, you are highly under insured, the return on the investment is terrible and there is no peace.

4. Debt is for short term, Equity is for long term

Debt based investments are for short term, if you have excess money lying in your saving or even worst current accounts, and you foresee a use of it in next few years’ debt is the way to go.

However, if the goal of your excess money is your new born child education, or your retirement, something that got enough time, equity gives a better return for long term.

5. Invest using SIP and STP

It’s highly impossible to time the market, and specially for techies watching the CNBC graphs is just not a nice idea. So the best way of investment in both debt and equity is using Systematic Investment Plans (or SIP), in a layman term, with SIP/STP your money is invested in regular interval and not in lump-sum. Like the Systematic Investment Plan (SIP) will invest in market every month, and hence on an average a profitable return can be measured avoiding the fluctuation of the market.

6. Stop misusing Credit Cards

Loans should be taken to help you in your need, a house loan, loan to launch a business. But most people these days are using the loans for monetary gratifications. As your good investments grows by Compound interest, so does the loans you take. Be careful when taking loans, it need to be repaid. And several times, much more than the principle.

Understand what is expense and what is investment, a land is an investment, a house is an expense. Gold is investment, car is expense.

7. Educate yourself about Finance

“Intelligence solves problems & produces money. Money without financial intelligence is money soon gone.” — Robert T. Kiyosaki

With technology now it’s very easy to learn, and it’s very easy to not learn. So give some better use to your television set, besides watching the reality shows, and listen to the investment programs.

Set Achievable Goal, and Celebrate

While your bankers will know you for the money you keep in your accounts, people will appreciate you only for the path, the right path, you have traveled to reach there. When you will achieve your Million dollar dream, you will realize it was never about the money, it was about seeding and nurturing something, and watching it become a big tree that gives fruit to so many people. And that feeling, is worth fighting for the next goal of making a Billions.

The idea is we celebrate every milestone. I do not believe that celebration should be done only on major achievement. To make a million, you need to make 10000 first, 100000 next, 1000k, 10000 then 100,0,00,000 comes. And enjoy each achievements, congratulate yourself, pat your shoulder and focus on next milestone.

This is a guest post by Zeeshan Alam – he is our Financial Planning Client from Jaipur. He runs Software Company based in India & United States. The views expressed herein are the author’s personal views.

Previous articleBond & Debt Fund Guide
Next articleSimple Tax Planning Guide
Hemant Beniwal
Hemant Beniwal is a CERTIFIED FINANCIAL PLANNER and his Company Ark Primary Advisors Pvt Ltd is registered as an Investment Adviser with SEBI. Hemant is also a member of the Financial Planning Association, U.S.A and registered as a life planner with Kinder Institute of Life Planning, U.S.A. He started his Financial Planning Practice & TFL Guide Blog in 2009. "The Financial Literates" is a dream & mission to make Indians Financial Literate.

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29 COMMENTS

  1. Hi Hemant
    Another very useful guest post. However I feel that there are certain points which need some clarification.
    First point :
    Understand what is expense and what is investment, a land is an investment, a house is an expense.
    Most people consider house as an investment. But if we consider the value of the house we will find that a major portion of it is actually the value of the land. Where as the value of the land appreciates the value of house depreciates with time. Maintenance cost of old houses goes on increasing and rental value goes on decreasing.
    Second point :
    With technology now it’s very easy to learn, and it’s very easy to not learn. So give some better use to your television set, besides watching the reality shows, and listen to the investment programs.
    It is a fact that young people these days spend less time in reading their text books and more time in using what Mudit calls Google Devta. Watching TV business channels has its advantages as well as disadvantages.

  2. Hi Hemant
    I have learnt today that you have started mutual fund advisory service. Why is it limited to only TFL Hindi ?

    • Hi Hemant
      Zeeshan has provided a useful summary of the points which you have covered in your various previous posts. Since most people don’t take the trouble of going through your all posts I believe that this is going to be useful not only to young techies but all types of investors. The point regarding credit card debt needs to be highlighted here.
      Compared to the generation of our parents, the present generation of young techies has higher disposable income. Newer lifestyles of young techies are not only more expensive but the social pressure to consume and spend more is now much stronger. Relatively few young techies get in to the habit of saving.
      When there is a rise in confidence about future earnings, the willingness to take credit increases. This translates in to higher spending and lower saving.
      Young techies are natural high risk takers. But they have only willingness and not ability to take risk.
      Before starting the habit of saving, young techies need to learn to stop desaving. The first lesson to learn is that credit card debt is financial poison. Excessive credit card debt destroys finances.
      The annual interest on credit card debt is close to 50%. I am not aware of any investment which can give you more than 50% annual return. If a young techie has any credit card debt, the best investment he can make is to pay it off.
      There are a large number of young techies who are spending and not saving, taking loans and not making investments and choosing worthless products like ULIPs. These people need the financial planners the most.

      • Dear Anil,
        Lifestyle expenses of young techies is even beyond my imagination (I am not that old 😉 ) specially on new technology like apple iphones or ipads.

  3. Hi Hemant,

    Use ful article but can u throw some light on the new reformation from the government on the small savings sector i.e. PPF , NSC and RD. PLEASE COVER MORE ON DEBT FRONT ALSO. Thanking you in anticpation.

    Akshay Dave

  4. Thanks for a grate article,
    Whats your thought on ICICI Focused bluechip fund, everyone is talking about this fund even though this fund doesnt have long track record

      • Hi Hemant
        The moment I saw it I could understand that it had look and feel of TFL. It is obviously a neglected child. Taking care of even one child involves a lot of work.

  6. Hi Anil,
    I am bit confused between Critical Illness policy and Accidental Insurance , what exactly is the difference , I already have a medical Insurance and Term Plan.
    Pls suggest

  7. Great points this holds true for anyone.
    We don’t allow people to drive without taking a driving license but we allow them to enter the complex financial world without any training/financial education.

    The first jolt that a fresher gets on joining a company is that his/her in hand salary is not the Salary/12 told in the campus interviews. He is bombarded with tiaxation, saving, investments advice and he also wants to spend. All the hard work involved (school, exams, college) were to get a job and now he has his own money and he wants to spend the way he wants..And If he has taken an Education Loan, he needs to repay that too.
    And the fresher is lost..doesn’t know where to start, has no guidelines.
    We all want short cut in life as there are more pressing matters – marriage, kids, vacation planning in addition to career building. And as they have no financial basics they get lost in the maze of financial choices- EPF/PPF, Mutual Fund/Stocks, Spend/Save etc.

    I would place Educate yourself about Finance right at the top.

  8. Hemant Best of Luck for your advisory services. It seems it is keeping you busy for last few weeks have seen guest posts..Looking forward to a post from you soon!

  9. Hello,

    Thanks for another wonderful article. I have few queries about investing in the PPF.

    1) I have planned to invest in PPF 30000INR annually. Should i try to put the maximun amount into it. (i know we can put upto 70000INR now). Becoz i am investing in Mutual funds as SIP
    a)HDFC Top 200 Gr – 1000 SIP monthly
    b)HDFC Equity Gr – 1000 SIP monthly
    c) HDFC Tax Saver Gr – 1000 SIP monthly
    d) Sundaram Select MidCap Gr – 500 SIP
    e)HDFC MidCap Oppturnities Fund Gr – 500 SIP
    So total of 4000 in MF. So please advise whether i can try to put more amount in PPF

    2) Where can i open the PPF account. whether in Post office or SBI Bank?

    Kindly help to answermy above 2 queries. thank you

    • Hi Karthy
      One basic rule of investment is that you should not put all eggs in one basket. The same rule applies whether you are investing in debt or equity.When you don’t follow this rule you are subjecting yourself to a lot of risk. By investing in four funds of one house you have shown that you don’t believe in this rule.
      Have proper asset allocation across debt as well as equity.
      PPF account can be opened in bank or post office.

  10. hi Hemant,
    I accidentally stumbled upon your site and you tube video when i was searching about retirement planning. in fact i am doing cfp course now. but after going thru your articles and discussion session i feel much enlightened about the subject matter. its very simple and easy tounderstand. the quality of comments followed in each article shows he type of people who are reading your article.
    i have been forwarding your article to some of my friends.
    you are doing a wonderful job. pls keep the tempo up.
    regards
    rajesh s

  11. Dear Sir,
    I need your guidance for my life secure. I am only son of my family and I have one daughter with around 2years of age. I am planning to invest for my child future for education and marriage and also I am planning to take one term policy for myself. Because, I am the only son to take care of entire family. So, I am giving the list of my investment till now.
    1. Jeevan Anand from LIC 1,00,000 Rs/- for 17years (yearly 6792)
    2. Jeevan Saral from LIC 5,00,000 Rs/- for 10years (yearly 24,000)
    3. PPF 20,000 per year (for 15years)
    4. HDFC Equity Growth Fund 1,000 per month
    5. Reliance Gold Saving Fund 1,000 per month
    6. Postal RD for my Monther 1,100 per month (Term 5years, Amt 1,00,000)
    7. Postal RD for my Dauther 1,100 per month (Term 5years, Amt 1,00,000)
    8. Postal RD for my Father 700 per month (Term 5years, Amt 50,000)
    Can you please review the above my investments and suggest best plans for term insurance and also for my child. I am really confusing how to invest and how to plan.
    Thanks,

    • Hi Suman,
      As you have mentioned that you are the only male member in the house – there is huge responsibility on your shoulders. I would not like to disappoint you but few of the investments in your portfolio are not making much sense. But even after that it is much better to many others who share their details & ask questions. We have repeatedly kept saying that one should not mix insurance & investment. Both the policies from LIC are traditional insurance plans where we cannot expect returns which can even beat inflation. My suggestion is you should make these polices paid up & take some term plan where sum assured is equal to 10 times of your income. I can clearly see after discontinuing these policies you will be having some good amount to invest on monthly basis – that amount you can divert in equity or balanced mutual funds. You can continue all other investments.

  12. Hemantji,

    very a useful-informative-applicable artical.

    each yong-or not do fince planning must read & follow advice.
    save & share artical its finace donation for noble socio work !
    tx.

  13. Hi Hemant,

    I am working in IT company and earn salary of Rs. 35000 per month after deductions. I am already paying quarterly LIC premium of Rs. 6550 (for me) and Rs 6435 (for my wife) for 30 yrs as per the 20 yrs Money Back policy.

    My monthly expenditure will be approx. 12000.

    Planning to apply PPF for me and my wife too..

    Could you please suggest me, in which are the investment I can go as an option ?

  14. Hi, just wanted a few suggestions from your side so that I understand how I should be managing my money and start investing/saving a bit. Will SIP a good option or should I go with few money back policies or FD etc or if you can suggest anything else, which also give some returns. Your reply will be appreciated

    Please find my details below
    Age – 26
    Monthly Income – 62 to 65 k/month (after tax and ppf) + approx 1.2 lakhs at end of the year
    Marital status – Single
    Financially dependant – None as of now (Mother and father once he retires)

    Monthly expense – Home loan = 35 k /month + Insurance – 5 k/ month + Rent and expenditures = 10 k/month + Misc 5K/month = 55k. Remaining – approx 6 K/month (excluding year end bonus)
    Investment appetite = 5 to 6k / month
    Risk Profile = moderate

    Objective = Need to save something for myself as all of it are expenses  might need some liquid money for urgent needs . Investment figures will increase overtime as loan amount will reduce; I will move onsite and salary increase (25%) over the year also assuming I get married to someone who earns at least 50% of what I earn 

    Time frame – No time frame as of now. But will have to plan. I might buy a budget car 4 yrs from now. Also marriage expenses etc.

    Other details – House possession in 2013 end so assuming I will be earning a decent rent on it (20 k min) so that will either help me in Emi or that will negate the rent I am paying right now). Planning to get married in couple of years that could mean increased expenses for some time (Read some travel and house management: P).

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