Dear Ajay,
We earnestly hope that this
letter finds you in pink of health and mood. Hope your family is also doing
fine. We wish to take this opportunity to write to you about our observations
on your financial journey till now, i.e. when you contracted us to make a financial
plan for you.
During our interactions at
various points of time, we have realized that there are some common but serious
shortcomings in your financial planning strategy till now. They can be broadly
categorized as under:-
EMI
You joined
this software company only 2 years back. However, the first thing you did was to
take long term liabilities upon yourself without understanding its long term
implications. Loans for house, high end electronic gadgets, car etc. are easily
available today. A housing loan liability usually long term in nature --runs
for 15-20 years. The initial period of 5-6 years from the day you joined the
present company is when maximum savings happens and should happen—since you
have no family responsibility. We are in no way intending to discourage young
aspirants like you from acquiring a house property. What we are only trying to
suggest is to postpone undertaking this big chunk of liability by a couple of
years—by when you would have accumulated some savings. Your present salary as
an assistant programmer is Rs. 50,000 pm. You have contracted a housing loan of
Rs. 25 lacs for 18 years @ 11% p.a. The EMI for the said loan comes to Rs.
26,600 p.m. So over the next 18 years you would have paid Rs. 57.50 lacs
approximately—nearly half of your earnings over the same period. With increase
in responsibilities upon marriage, the increment goes towards meeting the increased
expenditure rather than towards investments for meeting life’s goals.
Time
The only
scarcity faced by today’s middle & senior level managerial employee like
you is TIME. Due to rapidly changing business environment compounded by
globalization of Indian economy--responsibilities can and does only increase.
The idea is to—and rightly so—justify their salary and the commitment towards
the company keeps the employee constantly on the move. It’s good to be busy but
it is also essential that you take time out for your life’s goals. In being
honest towards your employers, executives like you forget or tend to overlook
the fact that you only are responsible towards your life’s goals. “Employer’s role
is to give you paychecks; his role is not to make you wealthy. Becoming wealthy
or not is up to you”.
Non Planned Savings
Your travel
plans and busy office schedules remind us of a statement made by a senior executive ”unfortunately
I have only 24 hours in a day to finish my work”. Hence, it is only natural
that you do not get time to plan your own finances. Important goals like
retirement planning, planning for children’s future etc. are more often than
not thought of seriously for want of time and hence, left to chance. Moreover,
with ongoing various types of EMIs, there is hardly and investible surplus left
to allocate towards meeting life’s goals in a judicious manner. To overcome
this guilt of not doing enough for your family in general and life’s goals in
particular, you have made some ad hoc investments without considering their
suitability to your goals. Your cash flow indicates that you are virtually
living on your cash flows—without any serious addition to your personal net
worth.
Over emphasis on Tax
Savings
Looking at
your tax saving investments, it seems you have usually resorted to last moment
investments. Last quarter of every financial year is a very tense period for
the salaried people, while a busy and remunerative one for IFAs. This is tax
planning or better still tax savings investment season. Tax savings seems to be
the only goal now. There seems to be an urge to invest even the last rupee to
save taxes. Different types of tax savings instruments viz; PF; ELSS, Insurance
policies, infrastructure bonds, tax savings long tenure bank FDs are all lapped up hungrily. Rather than plan
out the tax planning activity all-round the year there is usually a mad rush
for tax savings investments during the last quarter of the financial year.
However
there is nothing to be disheartened about. There’s always a scope for course
correction and that is exactly what we are going to do going forward. Remember,
the more money you make, the more you spend. That’s why more money doesn’t make
you rich—assets make you rich.
Assuring you
of our best of services, we remain
Yours truly,
Sd/-
CA Vijay M
Mehta CFPCM
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