Almost 5yrs back I wrote this article about financial independence( https://eduform.in/2011/08/21/path-to-financial-indipendence-power-of-investing/). At that time, I was young, immature and new to the whole corporate world. Today I feel that the frustration at that age was an eye opener for me. I have been climbing on the corporate ladder and understanding the various facets of the economy/business. If you read the news related to market and corporate world, it is quite common these days to find various companies which are going through the tough phase. Most of them are struggling to find the new sources of revenue growth, while others are finding it difficult to make the business profitable. Job security is no longer provided by companies; And it should not be expected as well. In such an environment it is becoming more and more important to achieve the financial independence than ever before.
Over the last decade India has produced huge number of engineers and MBAs from various institutes. In such scenarios, one thing which due to happen was oversupply of job seekers vs job requirements. Currently the employment market is going through a phase of correction and it might continue for some more years, as the global markets are slowing down, lot of companies are going slow in their hiring schedule. It has become quite common to see few of our acquaintance are asked to leave the firm for various reasons. Big corporates are announcing that they will lay off XXX employees during this year. It is important that we should plan to de-risk yourself from the dependencies on job to fund your routine expenses.
Last time I shared the three options which we can leverage to achieve financial independence; Part time professional services, Owning a business and Investments. Though as you grow in your career, the demand from work side keeps increasing and managing the part time work might be challenging specially after marriage :). Similarly, B business ownership is good but it is challenging either on time front or on the initial investment front. Investments is the easier way out but it is also time consuming and risky if you don’t do it right. As I relied a lot on investments compared with other 2 options, let me share few pointers to get you in right direction.
Take the first step; Invest in Yourself – We Indians have a great habit of being miser and fight for discounts everywhere. We plan our vacations based on flight/hotel discounts instead of feasible dates. Though in case of investments, we should plan and spend money on investment advisor upfront instead of opting for old school agents/brokers whose interest lies in generating more commissions for themselves vs importance of your needs. Do spend 1-5k at least once to consult a good financial planner and prepare a roadmap, after that you can do a review again after couple of years. It should help you plan your finances better:
- Proper insurance planning for health/ life
- Sufficient investment as emergency corpus in liquid funds
- Loan planning for buying car/home
- Future goals e.g. Child education, wedding, retirement etc.
Be Tax Efficient: for employed people, it is impossible to escape taxes. Though we can definitely optimize our tax outgo. Tax paid is the money lost, which is never going to come back so make sure to spend 10-30hrs a year for tax planning/payment and filing of returns and have a good CA to help you on this.
- Keep it clean and keep all the records of relevant statements and details
- Try to leverage the benefit of capital gain taxes instead of income tax by moving your investments from FDs/RDs to Debt MFs
- Utilize the tax saving provided under various sections for our investments in PPF/EPF/ELSS/Insurance/NPS etc.
- Plan your investments with a point of view on tax incidence. E.g. you can split the ownership of your house with your spouse to get the full benefit of tax deduction on interest paid. Or in case of Debt Funds if you buy them in Feb/Mar you can get 4 yrs of indexation even if you hold the funds for just little over 3yrs.
Educate yourself: Education is a continuous process especially in the current scenarios where things keep changing every few years. Also, Money is one subject which is not taught in school and college. Some sources which can help you get better understanding are as below:
- Read magazine (Outlook money, Money today etc.)
- Newspaper (Mint, ETWealth etc.)
- Attend sessions or talk to an experienced person, to learn things on personal finance.
This will bring the change in your overall behaviour/perspective. Read books on investments, personal finances.
Do it Yourself: Once you gain some expertise start doing things by yourself, it not only reduces the cost for you but also can be more beneficial in long run. E.g. if you buy MFs under direct plan yourself you will get atleast 10-25bps extra return which can create additional lacs for you in savings in future. You can also stop seeing the investment advisor frequently and do it only once after couple of years.
Above 4 things will not only help you plan for your future in more meticulous manner but also take away worries of contingencies of medical cost or job loss etc.