Hola! Our Dear Readers
Fasten your seat belt! Your personal finance journey is about to start!
This is the first blog from the Fintastic Sense team. We are excited to place it on your table. We hope it will delight you!
This blog aims to take you through the entire life cycle of an individual, starting at the age of 21 and ending at the age of 58, up until retirement.
Free Ideas and Tips for managing your personal finances throughout your Life Cycle
1. Gen Z – Age Group – 21-26 –:
Mbappe – Billie Eilish – Shubhman Gill – Naomi Osaka – Cameron Green
What is common in the above list? They are bold, aggressive, young, and energetic in their field. Isn’t it?
Yes. If you are between 21 and 26, u are also part of this club. You might be a young workforce in a large corporation, part of a start-up business, or an entrepreneur.
Welcome to Personal Finance Gen Z! Fam, aka family This space is for you. Let us walk you through your strategy to manage your personal finances.
You will earn your first salary or income after completing your studies. Please enjoy yourselves for the first three months, as you have just set yourselves free from your parents’ net. No more pocket money is required, nor is an explanation of the end use of funds.
If you ask us what you should do after three months, the celebration is over; therefore, just think about managing your finances yourself. Obviously, the honeymoon period would have been over at the workplace or marketplace after 3 months. It is time to put in hard work to earn every penny and then create a bright future.
What would be the first step in personal finance? It is just an understanding of it.
What is personal finance?
In simple terms, it is about the management of one’s money: income, expenses, savings, and investments. Then, create a budget for planning and tracking your spending to finally arrive at a certain amount of savings after all your expenses.
Ideal ratio? The 50%:25%:25% rule means you can spend 50% of your income on basic living expenses like rent, power, commutes, etc. and another 25% on enhancing your skills further with additional courses, books, magazines, and subscriptions that will attract opportunities to get higher incomes in the future. You are investing in yourself to create more value, which is the first investment one should make.
What should you do to balance the 25%? It is simple: Please start investing in financial instruments to secure a greater future.
If you ask what makes it so urgent now to save and invest, the answer is that you have a precious thing in your hand that is “TIME”. The combination of money and time is deadly and would bring a fortune even if you invested a little bit.
How? That is the power of compounding. Time will work for you in parallel when you are working on your career. It will multiply your returns over a period of time.
The next question is where to invest.
Many options are available for investing your money. Fintastic Sense recommends the below options considering your profile.
Stock Market
Mutual Funds
Fixed Deposit with banks
Gold
The proportion should be 60% on the stock market, 15% on mutual funds, 15% on fixed deposits, and 10% on gold.
Since you are young and have plenty of years to hold the investments, it is advisable to be aggressive like Mbappe or Naomi.
Please do more research on the stock market and MF before investing. Fintastic Sense will publish a separate blog on all investment options shortly. Please watch our website regularly.
Please do not think about availing a loan or credit card until you turn 27. Whatever you want to buy, please use only cash. Strictly no for credit cards as well until you understand the nuances of debt.
Please be conservative on debit; always save and buy. Aggressiveness should be limited to investment, not taking out loans.
2. Millennials – Age Group – 27- 42
Lionel Messi – Emma Watson – Virat Kohli – Lady Gaga – Cristiano Ronaldo
Common things? All the above millennials peak their career. Seasoned and matured in their respective fields.
Hi! Millennials ! Let us discuss personal finance, curated for you! .
You are peak of your career may be part of any industry, about to marry, married, having kids, matured, growing strength on strength.
How do you manage your personal finances?
Basics first, as usual! Creating a budget is the first step to personal finance. It will show your income and expense statement and any money left over for savings.
Always keep your expenses below 50% of your income, even if it means living below your means. Why ? because you have left with limited time in balance, hence investing your 50% of income is advisable for taking care of your kids education and your retirement.
After all your expenses or EMI, if any, you should save a minimum of 30% every month. Experts usually say that first you invest 30% of your income, then start spending 70% of the balance towards your needs. Absolutely correct!. At least think about saving 20% if saving 30% is difficult. But 20% should be the least.
Tips to buy House ;
The next big investment is a beautiful house, not a car.
Why ? You can pay EMI instead of rent. A car is only an expense, not an asset, whereas a house is an asset. First, buy a house, which is also an investment. Then you can plan to purchase a car, say, after 5 to 10 years.
People say staying in a rental house is better than owning one. No house always gives us a beautiful home. Let us enjoy it. Actually, it is an investment if your parents do not have a house in the city or town where you live.
If inflation gets high, the property may not be affordable after a certain age. It is better to take the risk early than taking it to fag end of career.
Owning a house has its own advantages and disadvantages. Please research it carefully. If your profession will take you different places every time, then buying a house is not advisable, as you will not be able to enjoy your property anyway.
Letting out is actually painful, as managing a rented property requires high skill. It is self-occupied, then own house better option. If not, please opt for a rental house, and you will not regret it.
Please buy house not to show off outsiders how success you are. Frankly, outsiders are least bothered about your success or failure as everyone is fighting their own battle, thus nobody gets enough time to think about you. It is your perception, or satisfying your own ego.
Other people do not worry whether you are living in bungalow-style or French-style apartments. As long as you are going to keep your expenses, including your EMI commitment, to less than 70% of your income and invest 30% of your income regularly, or at least 20%, you can buy anything.
Just reminding one more time: please plan your house purchase to be less than you can afford. If you could afford a 1 crore house, please plan something less than 75 lakhs. So that your EMI goes up due to an interest rate hike or an unforeseen situation, you will still have headroom to accommodate the increase in EMI.
One more last tip: please buy a house that is going to appreciate after 15 to 20 years. Pls avoid stagnant, no appreciation or slow appreciation properties.
Tips to buy Car ;
After buying a house, you can consider buying a car for your family. Until such time, enjoy your motorcycle rides or scooter trips.
A car is a depreciable asset from day one. Putting money into a depreciable asset is just spending the money; it is an expense, not an investment. When asset value is decreasing day by day, it is better to put very little into such obsolete assets.
A car is not a luxury product. Yes, we understand that. It is necessary now, given the current condition. But we know that car prices range from 4 Lacs to 40 Lacs ; it is our decision to pick up the range.
Hence, please buy in the range well below your means. You can afford to buy 25 Lacs Car, Pls plan for 12 Lacs Car or less than this value. SUV, hatchback, or sedan—all are your choice based on your lifestyle. We are just discussing what value one should set as the maximum price.
Just to remind you, real rich people do not spend much money on such assets.
Why ? They know the future value of current investments. If the future value of a current investment is less than the actual investment, then it is called a loss.” No rich person makes a loss knowingly.
Tips for borrowing of other loans – Personal Loan, Consumer Durable Products Loan, Credit Card Usage ;
Please do not get into any other debt traps like consumer loans, credit cards, or personal loans unless it is an emergency like medical treatment. Always use cash or debit cards to buy the products, as you have already made provisions and provided funds in the budgeting exercise. Just use it.
Please do not get attracted by cash back offers or reward points offered by credit card companies; all are gimmicks. You can get the same thing with debit cards as well, where the chances of getting into a debt trap are zero.
Insurance
Millennials need to take insurance seriously. Yes. Insurance is serious business. Not all insurance, but only two types of insurance
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- Medical Insurance
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- Term Insurance
Medical Insurance
Medical Insurance will be a contingent plan for your health issues. A family plan for 10 lacs per family is ideal. If you are living with your parents, then 20 lacs would be ideal coverage. You can pay the premium in one shot, quarterly, half-yearly, or month by month as you wish. But it is mandatory and non-negotiable.
Only unexpected medical treatment might cost your entire savings or investments. Insurance will also help to safeguard against premature withdrawals from your investments.
Term Insurance
Term insurance is for your family in case anything happens to you. Family will get funds to sail through financially at least.
Ideal coverage should be 10 times your annual CTC. Your annual CTC is 10 lacs, then you need to take term insurance for 1 crore. Similarly, entrepreneurs should cover 10x on their annual income.
Please do not mix up insurance with investments. Insurance will never be an investment vehicle. Actually, insurance is an expense that is being incurred today to cover huge future expenses that might or might not occur. It is a contingency cover; that’s it.
Investments
You should invest 40% on Share Market, 20% on MF , 20% towards FD and 10% on Gold as per Fintastic Sense view. This investment will absorb the shocks in the event of any unforeseen turbulence
3. Gen X – Age Group – 43-58
Sachin Tendulkar – Julia Roberts – Tiger Woods – Jennifer Lopez – Leonardo DiCaprio
All the above celebrities are champions, experts, and legends in the universe. Demonstrated their mettle over various timelines and earned enormous goodwill and reputation.
Yes. You are also part of the same elite club. What you should do about personal finance You are in the slog overs and need to plan many things before you hang on your boots. You’ve gained so much knowledge, expertise, and experience so far to sign off your career majestically.
Plan to close all your loans before you turn 55 years old. Housing Loan: Please start prepaying your housing loan year on year; that will reduce your monthly payment drastically.
While taking a car loan, please make sure that the term ends before you turn 50. So only the housing loan might be left out. If you start prepaying from age 42 onward, you might close your home equity loan at age 55.
Do not think about taking any new loans after hitting 50 years old. You should plan to reduce only the loan.
How about investments? till you turn age 50, please use 50% for share market, 20%
MF, 20% of FD and 10% Gold. After 50 years, please change the mix. 50% should be FD, 20% on gold, 15% on the stock market, and the balance, 15%, should be MF.
After 58 years, retire happily!
Hope Enjoyed your Personal Finance Journey!
We wish you a happy life!
Kia Ora!
