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financial planning for young

“Planning for the Unplanned”


This post has been written by considering financial planning for young bachelors and couples, who have taken courageous step to get their finances in a right path. Goal based financial planning depends on the various milestone in personal life, remember we are talking about the financial milestone. As you start young the picture ahead is not quite clear and questions like this put hurdles in planning for goals:
When will I get married? When will we have children? When we’ll have our own house? When will children go to college? When will children get married?
So, if you are a couple in late 30’s and early 40’s, your children might already have started going to school, so the picture is quite clear and dates too. But how should a young couple with no children plan for such goals? I remember, in my workshops, I used to take the youngest participants as a volunteer to make a live financial plan, and on the spot, we’ll deliver a baby or two for goal calculation. It might be hasty in that situation but you have time to think, you should decide when you are ready to take the responsibility of other persons in your life be it your spouse or the children.
By taking all things in mind, I am presenting a case study for your better understanding. This should not be seen or taken as advice given in personal capacity, it’s just an elaboration of goal setting for young individuals or couples.
So here I am taking a case of a young girl in her early 20’s, recently got a job in MNC and doing well in terms of her career. She decided to opt for the goal-based financial planning and started working on inputs. As she is a strong independent woman, she would like to work 5 more years before getting married as she has a certain position in her mind which she would like to achieve before settling down. 
Let’s focus on some financial inputs:

Age 22
Dependents None
Post tax Income  ₹        50,000.00 Monthly
Expneses  ₹        20,000.00
Risk Management
Life Insurance  Endowment and money back
Health Insurance  From company
Accidental  N/A
Critical Illness  N/A
Emergency Fund  FD
Saving account
Goals Type Date
Marriage  ₹    5,00,000.00 One time 01-03-2022
Child planning  ₹    1,00,000.00 One time 01-03-2025
House  ₹  20,00,000.00 One time 01-03-2037
Child education  ₹  20,00,000.00 One time 01-03-2042
Retirement  ₹        35,000.00 Recurring 01-03-2055

You can see clearly, how she designed the roadmap for her. She puts down her current situation, penned down what is needed in future and now she is ready to put numbers to test. I am not going to tell you whether she will be able to achieve all the goals or not, the point here she is being able to come to decided point in respect to numbers and dates. So how she decided all the points and dates, let’s discuss:
• Marriage after 5 years and after talking to her father, they might have to shell out 10 lakhs to have reasonable marriage in their hometown. She wants to takes care of all of it but her father insisted on sharing the half and half she can manage. So, this 5-lakh marriage corpus is present value, where she needs to add the respective inflation to come to a monthly saving figure. 
• She is quite determined when it comes to having a child and she decided to have it after 3 years of marriage. Also, she will take 2-year sabbatical depends on the condition to take care of the infants. So, she wants to be prepared for initial expenses and hospital expenditure and sets up a target of 1 lakh PV.
• Although she doesn’t have any problem living on rent, she would like to have a shelter for gloomy days when she is less productive. So, she is planning to build enough corpus to buy a house after 20 years from now. She expects her husband to pitch in 50% of the corpus as she is eying a 2 BHK in a decent locality which is costing 40 lakhs (PV). So, she needs to build enough corpus to match 20 lakh inflation protected after 20 years.
• You may not need to plan for regular school education fees as regular income can take care of that. The big expense will be the college education fees, so she is planning to pitch in for her child. As she is planning for one child only, so she needs to save for one child college education corpus. She did engineering from a decent college, where she paid approx. 2.5 lakh per year. She wants to have some room here as she got good marks and scholarship, otherwise fees might have been just the double. So, she will plan for 20 lakhs for a 4-year college education. 17 years after having the child, she needs the money to fund the college fees.
• So, for retirement corpus, how should we plan? Well, check your current expenditure. How much you spend in household, utilities, leisure, rent and misc. She will take out the rent part, as she will be having own house. Household and utilities will not be more than 15k for her, another 5 for leisure and 15 for medical (worst case), so a total of 35k per month inflation protected for 25-30 years after retirement. Now she just needs to do some calculation for corpus figure and monthly saving figure.
Consequently, while you write down figures and plan, make sure to keep some room in cash flow. The most needed surplus after making provision for expenses and investment is needed for fluctuations in personal and financial life. Also, an emergency today and one after 20 years will be having huge difference while it comes to money, therefore increasing your emergency fund at regular intervals is also advised.

The market has always undervalued financial planning for young but it is in your hands to put up first step towards it. Best of luck!!




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