“Before marriage, for both of us, spending would take precedence over other things and we just weren’t able to plan our finances properly. We exhausted whatever savings we had on our wedding and that’s when we decided we didn’t want to continue the same pattern now that we were starting a life together,” said Buch, who works in the information technology (IT) industry.
The problem, as Mahali puts it, was not with intent but with discipline and execution.
“I was well aware of investment options, budgeting, asset allocation etc, but had not been able to execute it successfully, which is what prompted us to take professional advice,” added Mahali, who is also an IT professional.
Mint spoke to the Pune-based couple and their financial advisor Vinit Iyer, co-founder, Wealth Creators Financial Advisors, whom they signed on in January 2020, to discuss how proactively taking charge of their finances early in their careers with the help of professional advice has changed their lives.
The first step for Buch and Mahali was to identify actual expenses and create a budget accordingly. “Since they had some aggressive timelines for few short-term goals, the monthly savings requirement was high for which the budgeting exercise helped,” said Iyer, a Sebi-registered investment advisor.
Their major goals included saving up for Mahali’s sister’s wedding, setting up a contingency fund and accumulating funds for down payment for a house purchase over the next two years. Other smaller goals included vacations.
Once the goals were charted out, Buch and Mahali were able to draw out a goal-based saving plan and decide the right asset allocation.
Buch said they were keen on investing in equity but Iyer explained to them why debt products were the right fit for the tasks they needed to save for.
“We now understand why goal-setting is important instead of randomly putting your money in different investment avenues. Getting exposure to equity for the sake of it does not help.”
Over the last two years, the Pune-based couple has been able to save up for all the above stated goals and even funded Mahali’s sister’s wedding.
“They have accumulated 20% of the home cost for downpayment and the remaining will be funded through a joint home loan. We have also drawn a plan for repaying the 20-year loan in under 10 years,” said Iyer. In fact, they have enough savings to fund child post-birth expenses as well, which they have started to plan for only now.
Buch and Mahali have been able to achieve this feat by consistently investing a little over 50% of their monthly income and plan to continue doing it.
Their current asset mix stands at 90% debt and 10% equity as the majority of their financial goals are short-term. Equity investments are earmarked for their retirement.
“Their equity portfolio consists of 40% in two equity linked savings scheme (ELSS) funds as part of tax planning, 40% in National Pension Scheme (NPS) and 20% in large and mid-cap funds. I have not recommended a small-cap fund yet as they are first time equity investors,” said Iyer.
Their debt portfolio is parked in ultra-short term funds and low duration funds.
Contingency fund and tax planning
While the pandemic did not result in any job loss or paycuts for Buch and Mahali, a sudden covid-19 related hospitalization during the second wave in 2021 brought home the importance of saving up for emergencies.
When the couple engaged Iyer in 2020, the latter made them set up an emergency fund on a priority basis. This fund came in handy just a year later when the couple had to pay medical bills of ₹8 lakh, and their medical insurance reimbursement came through only after the bills were settled.
They provision for three months of emergency fund and plan to increase it to six months once their other short-term goals are fulfilled.
Iyer ensures that tax planning makes up part of the couple’s overall financial planning.
For instance, on NPS, which is part of their retirement portfolio, Iyer has recommended Mahali and Buch to take tax benefits under section 80CCD (1B) (up to ₹50,000) as well as section 80CCD (2) which allows deduction on up to 10% of basic salary.
On the home loan front, he has advised the couple to take a joint loan so that both of them can individually claim tax benefit of ₹2 lakh every year.