By Vivina Vishwanathan Mint, New Delhi.
Meet Stacy Vaz, a 24-year-old resident of Mumbai. She works as a manager in the sales and business development division of Amsalem Business Travels Pvt. Ltd. She loves to travel and usually does one international and one domestic trip every year. She is also planning a destination wedding for herself. "Though I haven't decided the year in which I will get married, I want to have a destination wedding in a place like Goa," said Vaz.
Then there is Noida-based Mansha Arora, a 27-year-old senior consultant recruiter with Unison International Consulting Pvt. Ltd. She wants to pursue a Master's in Business Administration (MBA) after two years.
There are many such single and financially independent women with short-term financial needs. And according to Nitin B. Vyakaranam, founder and chief executive officer, Artha Yantra, their most important short-term financial goal is planning for their wedding. "This is followed by buying a car, funding their higher education and buying a house," he added.
Let's look at the process of structuring a financial plan and the challenges one might face.
Getting started Though participation of Indian women in making financial decisions is still low, there are many young, single women who know exactly what their goals are, and are independently working towards it.
"Usually, by the time they turn 25 years old, they are aware of their short-term goals. Generally, they work towards a 3-5-year goal, though the ticket size varies," said Vyakaranam.
For instance, when Vaz started earning, she knew her goals were aggressive, that she would have to start saving early if she wanted to meet them. Though Vaz does not have a definite timeline in mind for her wedding, she started planning for it two years ago. "I have been saving 30% of my monthly income and putting it aside in a recurring deposit," she said. At the end of every year, Vaz moves the lump sum amount that has accumulated in her recurring deposit into either a fixed deposit or an equity mutual fund. And being an avid traveller, she has planned for this particular interest as well. "I manage my domestic travel through my monthly salary. For my international trips, I redeem my investments whenever required. So, out of the overall investments, 60% of the amount will be for the wedding and the remaining 40% for my international trips," said Vaz.
Many others, like Arora, prefer the conservative route. "I want to do my MBA from a good business school after two years," said Arora. She doesn't plan to take financial help from her parents and wants to fund her education herself. "I have been trying to save 15-20% of my salary every month. This goes into a recurring deposit. Whatever amount is accumulated in the next two years will be used for my education," she said. The shortfall will be met through an education loan. Arora, too, plans to travel, and some part of the recurring deposit is kept aside for this.
Structured approach The best way to fund one's goal is to have a structured plan in place. Nisreen Mamaji, certified financial planner, and founder, Moneyworks Financial Advisors, helped a client, Dipti (who wanted to be referred to by her first name only), with a step-by-step approach. "She came to me two years before her marriage and said that she wanted a destination wedding," said Mamaji. For a wedding in Thailand, Dipti needed around Rs.20 lakh. While her parents were willing to put in Rs.10 lakh, she had to work towards the other Rs.10 lakh. Dipti's fiance chipped in with Rs.5 lakh. "We worked on a systematic investment plan of Rs.30,000 per month for 12 months. We put her entire monthly savings of Rs.30,000 in 100% equity mutual funds," said Mamaji.
However, as a thumb rule, Mamaji said that it is not recommended to invest all the money in equity for short-term goals. "In Dipti's case we did that because she wanted to take an aggressive position knowing fully well that the equity markets could be volatile. And since she was in a position to take high risk, as she had the financial support of her parents and fiance, who had promised to ensure that the cost of the wedding will be met, Dipti would not have to redeem the investment if there was a loss," said Mamaji. Eventually, Dipti's portfolio, which consisted of only large-cap diversified mutual funds, yielded her 50% compounded annual growth rate and she was able to raise Rs.4.75 lakh for her destination wedding.
What should you should? To meet your financial goals, first sort them out--what are the goals, which are more important, how much money is needed, when is the money needed, and other such questions have to be answered. The next step is to decide where to invest. "If you are looking to invest for a goal that is within 12 to 36 months, you should consider debt or debt-oriented mutual funds. For long-term goals such as retirement or children's education, you can invest entirely in equity mutual funds since the tenor of the investment would ride out volatility," said Mamaji. Inflation is always the party spoiler and must be taken into consideration for tenors longer than a year.
Typically, the planning process involves ascertaining the present value of your goal, factoring in inflation for the number of years you have to reach the future value of the goal, and calculating the monthly investment you would need at reasonable and expected rates of return. How to do that?
"Balance the investible surplus with the monthly amount needed for the goal. If there is a shortfall, you might have to either extend the time frame or take a loan. If there is a surplus, you can add in another goal," said Mamaji.
If you don't have financial backup, a conservative approach to meet short-term needs is advised. "In such a scenario, don't lock your very short-term money. Liquidity should be paramount, followed by safety and then returns," said Surya Bhatia, a Delhi-based financial planner.
Also, don't compromise on the long-term goals for the ones that are nearer. Follow these simple steps of financial planning, and make your dreams come true.