Top 10 Personal Financial Planning Strategies for Young Working Indians below 35 (2021)

Research carried out by one of the best Financial Planners in India, Fintenet; carves out the top 10 personal financial planning strategies for young working Indians below 35 to untangle the Financial Mesh and provide financial serenity for a lifetime. Most Young working Indians below 35 cannot tell the difference between savings and investments. Whether it is financing a house or a car or investing for meeting present and future financial goals for self, spouse or children; it pays to have started early in life and allow the power of compounding to accumulate the big financial corpus required to meet the goals at some point of time in the future.

“An investment in knowledge pays the best interest.” – Benjamin Franklin

Introduction

In the early years of my Financial planning career, when I had the opportunity and privilege of training thousands of young working Indians in the age group of 21-35 in the Financial domain, mainly catering to the core themes of Insurance, investments and retirement components of Financial planning, it dawned upon me at the end of every such training session lasting about two weeks that Indians as indeed their young counterparts in the West lacked even basic understanding of most things called Finance. And the irony was that most cared less to acquire the knowledge and skills in the game to be able to ride its benefits going forward. It was one of those subjects like Math, either you pursue it as passion or you chose to keep ten blocks apart from anything to do with it, under the premise that it was too complicated to understand anyways and when the need arrived to take that kind of expert financial decisions, there was no dearth of free advisers in the family and friends camps to bail them out (ET Wealth report). And this ‘free’ easy advisory system later became the bane of the Indian mindset, creating mental blocks against ‘Fee-based advisory’ models that emerged in the United States in the early 80s and have now become the default system of financial advisory around the developed parts of the world. So while I write this article to demonstrate the top 10 personal financial planning strategies for these very young working Indians below 35 years of age, I do so fully cognizant of the fact that much of these old mental blocks may still be resident in many of these young executives, however since the winds of change have been flowing in every professional field, I hope these young minds do understand the true significance of ‘professional’ financial analysis and recommendations as reported in the financial planning reports created by niche financial planning firms like Fintenet that should go a long way in securing their financial peace of mind and give them financial serenity in the long run. While the US-based CFP Board describes Financial planning as looking at a client’s entire financial picture and advising them on how to achieve their short- and long-term financial goals, it requires an enabling mindset from the client to be open for seeking professional help rather than resorting to free advisory support.

Personal Financial Planning Strategy for Young Working Indians # 1: Retire All High Interest Paying Debt

I met this young executive, Ravi, about 35 and just about the right fit for our confused Indian profile, during one of the Investors Awareness Program I had conducted at his workplace as part of the induction process for all new joiners in this IT major in Pune, India. While I had a great time engaging the young employees, a mix of men and women well balanced in their magnitude; I was aghast at some of the specific findings I unearthed as part of my constant endeavour to unravel their spending methods. Ravi stood out for the INR 2.5 lakhs of credit card debt he had amassed and the INR 5 Lakhs of Personal Loan he had availed for meeting part of his sister’s marriage expenses and for part down payment of his new car which he again financed through a 5-year car loan. After the program, he sought my help in illuminating him about his financial journey or rather the lack of it. He was paying over 20% on the unpaid balance he accumulated every month on the card and around 15% on his personal loan balance. He seemed to have been paying the minimum overdue every month to keep himself in the good books of the card company. I was too overwhelmed with his mess and asked him to contact me later for a thorough study of his risk profile and his financial goals, as he had none at that moment. He seemed to be drifting into unknown darker territory as far as his finances were concerned, even though he had the good fortune of earning a decent monthly income from his well paying job in the IT firm. The first strategy I proposed to him after about a week when I could establish contact with him, was to retire his high-interest credit card debt right away and later follow it up with the personal loan balance payments. At that time, I had just begun freelance practice as one of the best financial planners in India and was offering niche services in financial planning and consulting. Having trained by me in the basics of financial planning and known me as an expert in the domain, Ravi did as I suggested. It was one of the most basic but effective strategies in any financial planning process. He had no choice. He broke one of his fixed deposits even before maturity as the interest he would have lost was just around 2% annually compared to the over 20% gains he would make if he were to pay the credit card debt in full. The strategy paid off for him as he seemed to have started off well on his financial mesh untangling journey with my support. I put him into a one-year investment SIP in one of the top equity funds in the markets and he had accumulated enough to retire his personal loan balance as well within the end of the year. Ravi never looked back ever since and in due course of time, he became the person to go to for most of his colleagues who had suffered likewise.

Personal Financial Planning Strategy for Young Working Indians # 2: Start with an ‘Investment risk Appetite’ profiling done by experts in the field

There is no one size fits all in the financial and investment world. What works for one may and will not work for another. A young executive, aged 25 can make all the mistakes she can in her investment journey and yet escape lifelong bankruptcy if she had her income intact and with age on her side, she can recoup in a couple of years. A veteran aged 60 and retired, has no such cushion. Also, even among equals, there can be differing risk profiles, some being more risk-averse than others. Most of the time, risk-averse behaviours are also a product of a lack of knowledge about the instruments of finances and a lack of financial acumen. People who avoid investing in the stock markets have been active in investing in risky instruments like chit funds and parking funds in plantation schemes on the promise of higher returns. 

A mix of equity and debt instrument exposure in the portfolio of young working Indians will ensure financial goals are met as and when they arise. Any effective financial planning process will incorporate this strategy to secure their own interests going forward. The best financial planners in India and around the world will start off the financial planning process with this step and incorporate the result in the complete financial planning report.

You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” – Peter Lynch

Personal Financial Planning Strategy for Young Working Indians # 3: Start with a definite direction and well-set goal posts. List all present and future financial goals and their timelines 

This brings me to the first definite step in the process of Personal Financial Planning. First Things First. You have to sit down and make a list of all the short term and long term financial goals you have in mind for you, your spouse and your family. What I mean by this is to list financial goals like buying a house or a car, planning for children, meeting their school and university educational expenses, accumulating corpus for their marriage and your own post-retirement expenses so you could maintain your standards of life through regular annuity payments. Once you have these goals and their timelines defined on paper, you will be surprised by how easily the whole plan unfolds in front of you. From there on, it is only a matter of how you would invest regularly through SIPs and lumpsum investments into an accumulating corpus that will be ready to meet these financial goals you have defined well in advance. The best financial planners in India incorporate this step right away to make the financial planning process more effective.

“Investing money is the process of committing resources in a strategic way to accomplish a specific objective.”
― Alan Gotthardt

Personal Financial Planning Strategy for Young Working Indians # 4: Get Adequate Pure Term Insurance and Health Insurances in place.

Insurance forms the foundation of any effective financial planning process. The best financial planners around the world will secure the future income of the breadwinner for his family in case of loss of income due to unfortunate or untimely death of the life assured. The first decision every young working Indian should do right away on securing a monthly income is to buy adequate term life insurance cover for self which is equal to what technically is called the ‘Human Life Value’ or HLV. In practice, the thumb rule for financial underwriting is granting a cover ranging between 15-20 times one’s gross annual income. To illustrate, if Ravi has an annual income of INR 10 lakhs, then insurers would normally be comfortable granting a sum assured of INR 1.5 crore to 2 crores in today’s times, subject to satisfactory medical underwriting. Then again, term insurances come with the benefits of locking low annual premiums for longer periods of time and up to age 75 or 80. Surrendering paid-up traditional insurance plans with no obvious benefits offering low life covers is the right way to proceed. The benefits outweigh the small losses in the interim. Relying on employee term insurance cover is risky as the benefit is available only till the person is an official employee of the company. On resigning or retirement, the cover ceases to operate automatically, leaving a big void in the insurance portfolio. Adequate medical insurance covers have to be secured for the family, including for parents. Dependent Parent’ health cover cost qualifies for tax deductions under Sec 80D of the Income Tax Act. Employer benefits may have to be supplemented by self-financed health insurance covers to secure adequate health insurance benefits in case of emergencies. Family floater schemes or top-up covers to base plans may be bought from insurers to fill the medical insurance void. 

Personal Financial Planning Strategy for Young Working Indians # 5: Start Your Investment SIPs right from your first regular salary/income and ride the power of compounding over the years

The best way to become rich over a period of time is to start young. A monthly SIP of only INR 2850 for a period of 26 years will accumulate to INR 38.97 lakhs assuming an average of 10% compounding growth every year. If the compounding rate falls to 8% per annum, the monthly SIP has to grow to INR 3920 to accumulate the same amount. During market decline cycles, your monthly SIP amount will garner more units and since your final portfolio amount is the sum of all units in the Mutual fund account multiplied by the current unit price, there is a guarantee that your money is growing while you are asleep. From Insurance to Investments, Education to Marriage & post Retirement annuity needs, simple Passive investments in Mutual funds can be leveraged with a diversified portfolio with a blend of equity, gold and money market instruments, the allocation depending on the goals and the time remaining to achieve the goals. Some of the best financial planners in India like Fintenet offer niche consulting services for Young Indians looking to commit to the path of financial freedom. They advise you to prudently shift from a fully aggressive equity focussed fund to a liquid fund during the last year of a nearing goal, so you do not want to risk any downturn in the market cycle from thereon. Such advises are worth their weight in gold. A small proportion of your funds can also be allocated to alternate investment products such as cryptocurrencies for benefiting from any big uptrends in the long term, should market dynamics and governmental policies go in its favour.

Personal Financial Planning Strategy for Young Working Indians # 6: Open a 3 in 1 stock broker account (including DMAT account) and become part owners of some of the best businesses in India and the World. Invest for the long term.

Make it a habit to keep adding in the long run on market dips and grow a winning portfolio. There is no compounder better than the stock markets. Building a portfolio of some of the best blue-chip companies listed in Indian and global markets is a sure way to beat inflation and grow rich over a period of time. Consistency in investing is the key. Being invested at all times is what delivers growth in portfolio value against frequent churnings of portfolios.

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” ― Paul Samuelson

Over a period of 10 years from its low of INR 5.70 in Jan 2009, Bajaj Finance the underdog stock grew to INR 6790 per share as of Aug 23, 2021, a whopping 119,022% increase over its low base price in 2009. An investment of INR 100000 at the Jan 2009 lows would have grown the portfolio to INR 11.91 crores as of 23 Aug 2021 all in a matter of only 10 years. For reference, safety seekers investing their money in bank FDs would have at the most doubled their money in the same period. Money has an opportunity cost and should not be blocked in low return investments in the name of security alone. Passive investments in index funds have returned over 10% CAGR returns in the last 15-20 years since the liberalisation of the Indian economy in 1991. Similarly, you can invest in the US markets directly through international broking intermediaries and buy shares of Google, Facebook, Tesla, Apple etc. that dominate world markets. The NASDAQ index has been a consistent outperformer in the US markets, often trading at very high P/E levels.

Personal Financial Planning Strategy for Young Working Indians # 7: Invest First, Spend Later

If I had one single piece of advice for young working Indians below 35, it would be to commit a fixed component of your income every month to an investment portfolio. We have already mentioned the goal-based theme for every component of investments but largely we assume that even if your financial goals are taken care of through present monthly allocations via SIPs, you should still have a way to invest surplus amounts every month into focussed instruments that again could be a blend of equity, PPF, Gold ETFs, money market instruments and the like. To illustrate, let us take the case of Mr Ravi who earns a net income of INR 1.5 lakhs every month. If his financial plan makes it imperative for him to allot INR 30,000 every month via SIPs to meet his future financial goals, and if his household expenses do not exceed INR 30,000 every month, then we can safely presume that he still has a surplus of INR 90,000 every month to invest. Now the principle is to ‘Invest First and Spend Later’. So every month let’s say Mr Ravi gets his paycheck credited into his bank account on the last day of the month, the 1st of every new month he can invest the fixed amount of INR 75,000 (keeping INR 15000 for emergency cash needs every month) in his preferred instruments depending on his risk profile and market cycles and out of the remaining 60,000; 30000 anyways goes into his set SIPs as part of his financial planning strategies to meet his goals and the rest 30000 is available for meeting household expenses. Of course, he will do well to hold 10% of his income for emergency cash needs. By prioritizing your investment needs first you are making a definite statement on your financial acumen for the long term.

Personal Financial Planning Strategy for Young Working Indians # 8: Real Estate Investment is not the same as it used to be 15 years ago. So stop blocking Your Hard Earned Money!

15 years ago, real estate was on a roll. You would have been fortunate to have bought a home or a plot of land in your city or anywhere on the planet. The benefits were immense. Interest rates were falling and mortgage rates were low. The rates were just picking up. Many of my colleagues working in this life insurance company with me in the years 2005-2010 invested at dirt cheap prices per square feet of real estate in urban areas and have been millionaires since. I remember a friend who I had accompanied to the builder and after constant prodding, the builder managed to get him to part with a cheque of INR 10000 as a down payment for a 2BHK flat in one of Pune’s upcoming urban townships, the rest to be financed through banks. The flat cost INR 9 lakhs only in 2006. Over the next 10 years, real estate prices peaked like never before. In 2019, the flat would fetch INR 90 lakhs, an increase of INR 81 lakhs in 13 years. Such was the ferocity of the expansion in rates. To put things into context, my colleague paid an EMI of INR 7000 every month for the flat and he was receiving close to 10,000 rent from his tenants. So overall, he was ‘net’ profitable from day one on his investment. That was a dream proposition to have. Gone are those days. However, as a thumb rule, I would suggest that you look at real estate as an investment only if the EMI you pay every month (towards owning your home one final day after the last of the instalment has been paid to the bank) can get you a notional rent of 50% or more in the area should you wish to monetise your investments right from the time of purchase. Investing for long term appreciation is dead in most of the urban pockets and it is foolish and imprudent to commit your hard-earned money as EMI outgo for a period of 20 years or so especially when there is no guarantee of future employment/income anymore. The stress is definitely not worth the risk. Having one house to live in and another for rental income is a great thing but investing consistently in flared up real estate markets can be imprudent in the long run. 

Personal Financial Planning Strategy for Young Working Indians # 9: Review Your Financial Plans Regularly

It is not just imperative to define and implement a great financial plan when you decide to do so, but equally imperative to keep the plan best suited to meet any change in financial obligations and needs on its way too. The best financial planners in India incorporate this step to make the financial planning process more effective and robust over its term. For example, at the time of creating the 1st personal financial planning report, if you were unmarried and later you did get married and had a child, the goals will get enhanced to include those for the future needs of the child too. Similarly, your aspirations can undergo huge advances as and when you move up the corporate ladder or maybe you have shifted to a more creative self-employed mode and may need to prune down your aspirations a tad for your convenience. Life is uncertain and financial insecurities can happen during economic downturns and recessions. The Pandemic has been a rude awakening for many in developing nations. So, you may want to be flexible as far as balancing your allocations is concerned. The March 2020 crash across global markets gave excellent opportunities for all to invest heavily into the markets. Black swan events such as these occur once a decade. The gains are immense to be made. The market philosophy is to buy fear and sell greed. Markets have given a V-shaped recovery from the March 2020 lows and have surpassed all-time highs. The bubble is growing by the day and investors are not complaining. Young investors have mushroomed all over the world and money seems to have been made the easy way, giving an impression that stock markets are the havens to park money and you could never make a loss. A 20% healthy correction in Indian markets is long due and when that happens new investors would have graduated to a saner level of understanding about market dynamics in the long run. Periodic review of existing financial preparedness offers robustness to the plan and makes it fool-proof against changing financial dynamics. 

Personal Financial Planning Strategy for Young Working Indians # 10: Engage a professional Personal Financial Planning Firm to write the best financial report possible to address all your financial goals.

Last but not the least, do not fret over all the above strategies yourself. There are specialised personal financial planning firms that write professional reports for meeting all financial goals for their clients and recommend a choice of products and instruments to help build the corpus to meet all financial goals for your family needs. And for a small fee too. Opt for financial planners or advisors that charge a fixed fee for writing comprehensive personal financial plans over those who are authorised agents and recommend products that pay them commissions as payouts from your money.  

One of the best Personal Financial planners in India using the benefit of technology to analyse and deliver the best possible financial planning strategies for young Indians is Fintenet. Founded by a Europe educated financial planning professional, Mr Santosh Prabhakaran, with over 20 years of experience in analysing and writing recommendations to meet various client objectives and using one of the most effective financial planning processes; Fintenet is fast becoming the preferred single-point service provider for young Indians aspiring financial serenity. Mr Santosh is active on his personal Twitter handle and can be reached at info@fintenet.com.

Conclusion

To summarise, these top 10 personal financial planning strategies for young working Indians below age 35 have the potential to establish winning habits for present and future investing and behavioural science aspects that will surely go a long way in securing financial goals whenever they arrive. These are the most effective personal financial planning process steps that can be followed by even laymen having little knowledge of the financial planning process. However, engaging professionals in preparing your complete financial plan report is the best investment you can make for securing your financial serenity.