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Earlier we invested if money was left after spending; now we spend after investing

LiveMint logoLiveMint 30-07-2017 Kayezad E. Adajania

Being financially literate doesn’t guarantee you success in your money life. The Arekars were already making investments out of the income they were earning; first from their regular jobs and then the business venture that they set up in 2014 (after they had quit their regular jobs). They knew what investments like fixed deposits meant, why insurance needs to be bought, and so on, but they never quite comprehended the necessity to put it all together in a cohesive manner, so that it would all eventually lead to a financial goal. Worse: they had no financial goals.

They had made lump sum investments in equity mutual funds in 2008—when markets had corrected—and stayed invested. But the investments didn’t have any purpose. An occasional systematic investment plan (SIP) was also started somewhere in between. Manisha had also invested in a tax-saving mutual funds. But the purpose was to save tax, more than to make reasonable money out of the investment. Insurance policies were brought regularly but randomly—Salil’s parents used to decide the amounts every year, after consulting an agent who had known to the family for a very long time.

The Arekars now manage a firm called Bridging Gaps Marketing Consultancy Services Pvt. Ltd. They help family-owned businesses that are struggling sales teams, to put their systems and processes in place and scale-up their businesses and sharpen their sales techniques. A big part of their game-plan is to also handhold these businesses and to help them execute trades. “Whatever assets your business may have, at the end of the day you have to make those work towards your goal. I was helping our clients’ assets and strengths to reach their goals but I wasn’t doing the same for my money box,” Salil said.

When financial planner Yogita Dand walked into their lives in 2016, the first thing she took note of was that the Arekars have two young kids; Ishaan (now 9) and Kabir (now 3).

Given that fact the couple had just started their own business venture, their children’s future could become insecure if something untoward were to happen to them. “Both of them are sole earning members of the family and the kids are completely dependent on them; there’s no one else to look after them otherwise,” says Dand. She made the Arekars buy a term insurance cover, and simultaneously started the process of trimming their other insurance policies—the ones that Salil had bought earlier.

“Earlier, I used to buy many insurance policies but my cover was still not good. Also, the money that I used to get at the end was not much. I used to pay more than Rs30,000 in premiums every year but my insurance component was still less than Rs5 lakh. I was aware that I was doing inadequate financial planning, but for some inexplicable reason it was just going on,” says Salil.

The Arekars had about Rs15 lakh in fixed deposits when they came to Dand. Close to Rs14 lakh were also in equity mutual funds, thanks to a lump sum investment they had made in 2008, which they never withdrew. They also had a few SIPs that they had started intermittently. With Dand’s help, the Arekars ascertained three key goals for which they need to channelise their investments: kids’ education and their own retirement as long-term goals, and their annual holidays as medium-term recurring goals.

Now, when their fixed deposits mature, the money is channelised to debt mutual funds. Earlier, Salil used to invest just Rs5,000 a month through SIPs; now he invests Rs20,000 every month. A health insurance cover is where the Arekars are still lagging behind. At present, they have a cover of only Rs5 lakh. “We definitely need a bigger health cover for the four of us,” he says.

Like many middle-class families, the Arekars invested in real estate by way of a flat. They had purchased it in 2015 to fund their elder son’s higher education. Dand says she may ask them to sell this property at a later date and reinvest the proceeds in equity mutual funds to optimise returns.

“Post financial planning, we have been making compulsive investments. It has brought about a forced saving habit. Earlier, we used to invest if money was left after all the spending. Now we spend if money is left after investing,” Salil said. For someone who used to think that financial planning was meant for “those who had a lot of money,” the Arekars have come a long way after they started consulting a financial planner.

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MY PLAN

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Name: Salil Arekar

Age: 41

Profession: marketing consultant

Name: Manisha Arekar

Age: 40

Profession: marketing consultant

Financial planner: Yogita Dand, Svarasa Financial Life Planners LLP

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