For Kshitij Ranjan, 34, who belongs to a farming family from Bihar, lessons in frugality came early. While Ranjan’s parents both had teaching jobs with the state government, this did not bring much relief. Their salaries were low and over a dozen members of their joint family were financially dependant on them. “Despite the hardships, my parents managed to educate me and my siblings. We all have good government jobs,” said Ranjan, a Bengaluru-based central government employee. But a fixed government salary and nominal yearly hikes meant Ranjan lived paycheck to paycheck initially. The lack of liquidity hit him when his father suffered a brain haemorrhage in 2013. “For 10 days before he passed away, he was in the ICU, where the daily charge was around ₹50,000. We didn’t have enough to pay the bills, so we had to borrow money from a relative. It was a wake-up call,” said Ranjan.
A NEW JOURNEY
The shock of being so unprepared to deal with an emergency pushed Ranjan to read up on the various aspects of personal finance. He did his research and joined various online groups to understand insurance, emergency funds, and the importance of saving and investing. He started closely tracking his expenses and didn’t budge when his friends mocked him for not spending.
Till recently, Ranjan was a DIY investor and learnt about goal-based investing from personal finance experts online. However, he lacked the discipline to invest in a systematic manner. He would try to time the market and end up with most of his savings sitting idle in his savings bank account.
In 2019, he felt the need to start working with a financial planner. “I became a father and realised that my responsibilities would increase manifold. I couldn’t afford to be casual in my approach towards investing, so I decided to consult a financial planner,” he said.
Ranjan and his wife Saumya met Melvin Joseph, a Bengaluru-based Sebi-registered investment adviser and founder of Finvin Financial Planners. The first thing Joseph did was to reduce the number of mutual fund schemes Ranjan had been investing in. “He also suggested some new schemes and asked me to bump up my term insurance cover,” said Ranjan. Joseph said the couple was already investing in mutual funds, but not in a structured way. “He invested small amounts in too many funds. He also experimented with investing directly in the stock market, but none of these investments were tied to goals,” he said.
Joseph asked Ranjan to list his long-, medium- and short-term goals. Ranjan’s long-term goals include saving for his daughter’s higher education and his retirement. He invests about 60% of his take-home salary to achieve these goals. For now, he’s investing aggressively in equity mutual funds for these goals, but also has some exposure to debt through his Public Provident Fund (PPF).
Ranjan also wants to buy some land and build a home eventually. “Once my salary increases considerably, I’ll try and invest for the dream house and my daughter’s marriage. But I do hope that with a good education and a stable job, she will be able to fund her own marriage expenses,” said Rajan.
Since Rajan works in the public sector, his job is more or less secure. However, his investments, have taken a hit. When the couple first met Joseph, their asset allocation was 30:70 in equity and debt, but it had been altered 60:40 to help achieve their goals.“I had painstakingly increased my equity investment, but due to recent market volatility, the value of these equity has eroded,” said Ranjan. His goals being decades away has helped him stay calm despite his investments being impacted due to the ongoing crisis. If an emergency does arise, the couple has a contingency fund to fall back on.
Ranjan is yet to see significant gains in his investment portfolio, but he understands that he’s still in the accumulation stage. “Stock markets crashing could actually be good news for me because I will be able to accumulate more units through my mutual fund investments,” he said.