As the second covid wave makes its way through India, Mint speaks to people across the country on how they are saving, spending and coping financially with the pandemic. This 34-year-old Delhi resident, with a family of four, saw salary cuts and delays at his startup last year after covid stuck. With the future looking uncertain, he decided to switch from his chartered accountant job earlier this year. While his new job at a multinational company has come with its own set of issues such as higher workload, he is not complaining, as he is sure of the paycheque at the end of the month.
How have your saving and investment habits changed after covid?
Financially, covid resulted in a lot of stress at work, including salary cuts and delays, which impacted my personal life too. So, I switched jobs. Health-wise, the past year was more or less fine, as the whole family had contracted covid, but we recovered. Covid has brought in forced saving, as eating out and outdoor activities have nearly stopped. Second, the pandemic has forced me to rethink traditional instruments of saving as interest rates have fallen drastically.
At what age did you become financially responsible?
In chartered accounting, you can’t become financially independent till you get an actual job. I became financially responsible at 24.
When did you realize you wanted to become a CA?
It was by happenstance because I was preparing for my MBA but had also appeared for the CA entrance exam. There was no predetermined plan to become a CA.
How did you go about managing your money when you started your job?
In the beginning, managing money was more of a situation-based rather than a planned thing because I was repaying my personal loan, so some part had to go for repayment, and some money went to household expenditure. Some bit of financial management happened from the company’s side because they opened my NPS and PF accounts. One could take that as a forced investment. Moreover, I also invested in a five-year fixed deposit to claim income tax deduction. The investment amount remained the same for the first two years, but then I increased my contribution to EPF and NPS.
How are you investing for your goals?
I tend to focus more on passive investing as I don’t believe in sitting in front of a computer on a daily basis to make investment decisions.
For my long-term goal, which is retirement, I have earmarked funds in EPF and NPS. For my mid-term goal of property buying, I haven’t started investing yet but will start in the next one-two years. My one short-term goal is marriage, for which unfortunately I don’t have a plan yet.
What is your emergency corpus like and what insurance plan do you have?
My emergency corpus is in the form of bank savings, which is sufficient for three-four months. I bought a term insurance cover after covid, which is for more than ₹1 crore, and health insurance is provided by the company for ₹5 lakh and I have also taken a top-up of the same amount.
Expert Speak | Go for ELSS funds instead of 5-year FDs to save tax
Suresh Sadagopan, founder, Ladder7 Financial Advisories and a Sebi-registered investment adviser, says covid has affected different people differently. “It is fortunate that he was able to make the switch to an MNC from a startup to stabilize the income flow,” he adds.
Sadagopan has suggested the following changes to his financial plan to make it more effective.
* He is maintaining four months of expenses in bank savings. This liquidity should also include the EMIs for loans he is servicing. It is ideal to have half in bank savings and the other half can be invested in a low-duration debt fund, which can be used when required.
* He has term insurance and sufficient medical insurance. He could consider taking a personal base medical policy apart from the top-up he has taken.
* He is saving decently. But the EPF and NPS money are locked up and others are in equity MFs. This means that he may not have a fallback if he requires money in the short term, apart from the balance in the savings account. He should invest in debt-based instruments to build an emergency corpus and for short-term goals.
* Investing in passive funds is fine. But a good mix of passives and actives (especially in the mid- and small-cap space) will be rewarding. Best to keep international allocation to about 25% of the portfolio.
* He could invest in equity-linked savings scheme or ELSS funds instead of five-year FDs for tax-saving investments.
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