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Be prudent and follow simple steps to become financially free

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A volatile business, lack of contingency planning, high-interest debt, and four dependents (two children and parents)—that’s what it took Mehul Ratanghayra, 46, to realize that he needed help to get on to the path to financial freedom. Until then, Mehul and his wife Reshma Ratanghayra, 40, invested a significant sum—unfortunately, like most Indian investors—in assets such as post office deposits, Life Insurance Corporation (LIC) , and other traditional financial products.

“My investment strategy was haphazard; I chose random brokers and bankers to handle my surplus income and banked my savings on their advice, which was commission-based and, possibly, even biased. I also didn’t know how to plan for my children’s future expenses. Besides, I had insufficient insurance coverage and contingency funds. Moreover, I had a high-interest loan which, too, was eating into my savings,” said Mehul Ratanghayra, who is an entrepreneur and runs a business of branded car rental services in Mumbai.

Investment journey

In 2014, Mehul and wife Reshma, who is his business partner,too, realized something wasn’t right; their income wasn’t generating the financial cushion they needed. They took a call to seek an expert for advice and, with some research, understood the need for a fee-based financial advisor who would act as their fiduciary (and not a random commission agent).

This is when they reached out to Tarun Birani, managing director, TBNG Capital Advisors. Birani discussed their money habits, financial goals and proceeded to do a thorough financial risk assessment.

Birani, a Sebi-registered investment advisor, found that the investment instruments they had chosen weren’t aligned with their financial goals. They underestimated their risk capacity and invested 55% of savings in debt. The majority of their assets were in safer low-risk instruments, not generating adequate gains. Their existing insurance did not tally with their human life value calculation. They lacked adequate contingency fund. Besides, there was no segregation for personal and business finances.

“On the positive side they were extremely open and transparent about their financial journey and life plans. With this, I got the right insight to better understand their goals and the blueprint to plan the way ahead to fund their milestones,” said Birani.

Contingency planning

Birani said the first step was to get their contingency fund in place to ensure they had adequate liquid savings to fall back on. As a thumb rule, a sum equivalent to 6 months of essential expenses was parked in funds that could be easily liquidated within a 48-hour period to cover any critical requirement. Next was to ensure they are insured. Through a human life value calculator, adequate term cover was calculated for each family member, along with a complete health check-up to rule out any underlying medical illnesses. “Mehul’s earlier LIC policies were mainly moneyback ones with very low life cover, which was inadequate as per human life value calculation. As a thumb rule, 7 to 10 times of annual income should be looked for life insurance,” Birani added further.

Asset allocation

“From an investment angle, their asset allocation strategy required an overhaul,” said Birani. “Mehul invested 24% of his assets in real estate, 55% in debt, a mere 18% in equity, and 3% in liquid funds. This did not align with his risk-return capacity of 50% in high, 40% in medium, and 10% in low risks assets.”

Birani took around two months to plan, during which he created a corpus for future expenses, like kids’ education and marriage. Investments that didn’t align with goals were exited from (like post office savings). Besides, the planner made a focused plan that was prioritized to systematically clear high-interest debt. Most direct equity and commission-based investments were removed. Further, the planner created road map for separating personal and business finances.

“Today, in 2021, their asset allocation matches their risk profile; their portfolio consists of 53% equity, 35% debt, 10% in real estate, and 2% in liquid assets. Through prudent and diligent investing, they are on the right path to financial freedom. They are debt-free with sufficient corpus to cover contingencies. Their kids’ future financial needs are taken care of through monthly investment plans,” said Birani.

The planner has also prepared them on a plan to financially handle any volatile business scenario to ensure their investment journey remains on track to lead them to financial freedom.

Financial freedom is not difficult to attain; all it requires is a little prudence, diligence, assistance and above all the absolute desire to be financially free.

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