THIS IS AN ARTICLE …..

–    By Gaurav Rajput, Director Marketing, Aviva Life Insurance

Warren Buffet famously shared, “Someone’s sitting in the shade today because someone planted a tree a long time ago.”  Indeed, what he said is true. In order to enjoy the benefits of a rich future, it is essential to start investing in the present, especially when it comes to your financial future. If you start investing early, you can build a significant corpus to lead a better life in future. Also, it will help you avoid the ‘additional costs’ that a delay can cause. Therefore, financial planners advice that people should start saving/investing as soon as they get their first paycheck.

Unfortunately, the young urban population, who has just started working and is beginning to enjoy the benefits of all those hard years of study, does not give much thought to planning for the future. Investment and savings seem like distant concerns, and not something that would affect their life immediately. What they don’t realize is that procrastination in formulating and implementing a proper financial plan can result in financial burden in the later stages of life.

Let’s take into consideration various factors that affect our lives today and analyze what the cost of postponement of financial planning would mean in each case:

Education: Keeping in mind the current inflation rates, it is estimated that an MBA that costs Rs. 400,000 today will cost Rs. 20,00,000 in 15 years time. How many parents will be financially ready to bear this cost when required for their child without dipping into retirement funds? According to Aviva Young Scholar Insights, a survey conducted across 12 cities in India, it was found that investment for a child’s education is the topmost priority for 72% of Indian parents. 81% of parents also admitted that they have no clue on how to go about meeting the cost of child’s future education. It then becomes even more important for young parents to start saving early so that the expense for their child’s education doesn’t become a burden later. Apart from saving in conventional methods like a savings bank account, parents can choose child insurance policies to protect their children’s future. Investment in child insurance policy ensures that the child’s education is unhindered, even in case the parents are no longer around. It not only creates a corpus keeping the rising cost of education in mind but also insures the life of the parent. There are also child plans from other investment options like mutual funds which aim at creating a corpus.

Retirement: Due to lack of a formal social security system in India, retirement is another top area of concern for 45% people in India. Majority of people think that their savings are enough to lead a comfortable life after retirement. However, with no regular source of income, rising inflation and the cost of unexpected critical illness, savings alone cannot meet all needs. To be financially secure, one needs to start planning early, and save as much as possible in the initial years. This is because in the early years, there is neither pressure to support a growing family, nor high medical expenses, hence saving is easy. There are plenty of investment options available in the market like pension and retirement plans by insurance companies and mutual fund schemes that can help people reach their estimated retirement corpus. A combination of different investment options in the portfolio can help one attain his/her retirement goals.

Health and stress related issues: According to World Health Organization (WHO) figures, over 50 million people in India are suffering from diabetes. India also ranks high on the list of countries where heart related issues are a major concern among citizens. With the majority of population under the age of 35, these are indeed worrying figures. Taking into considering the highly stressful lives being led by youngsters, it is imperative that one plans well in advance for any unforeseen event in the future. A term plan is a must in any financial portfolio as it helps reduce the stress of the later years where one would have assured their family a comfortable future, in case they are not around. Almost all private insurers in the country today have launched online term plans, which are easy to understand and invest in, given the simple nature of the products and cost benefits they offer. The buying procedure is virtually as simple as applying for a credit card. Most of these products also have the option of riders which helps you customize your policy based on your needs.

Considering the rising cost of medical expenses, one should also buy a health plan and a critical illness cover, for a complete health insurance portfolio especially for the earning member of the family. While the health plan will cover a certain portion of the hospitalization expenses, the critical illness plan will provide protection against critical illnesses, and will help tide over any additional expenses that may not be covered by the other policy.

Thus, judicious and proactive financial planning will make sure that you have enough resources with you in the future, to fulfill your child’s aspirations, take care of your family and retirement needs. Start planning without any further delay so that you can build a better future for yourself. Remember, while the key to successful planning for future is to start early, it is never too late to get started.

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  1. American bloggers who write on ‘early retirement’ are dumbfounded when I tell them general inflation in Indian hovers close to double digits.

    Inflation in medicine and education will easily be 15-20% enough to lose sleep and appetite.

    If someone has postponed investing beyond 35 there is a pretty good chance he/she will have trouble with most goals.

    A new generation of Americans is planning to retire by 35 with a corpus close to a million USD and a frugal lifestyle. I think this is near impossible or at least extremely difficult in India.

  2. I know about inflation levels in the US. I also know about several MFs which have consistently beat inflation for decades. Value investor have done even better. There are many who have been living on passive income for decades and they swear by a withdrawal rate of 3-4%. Not everyone’s cup of tea but possible. My point is even with the intelligence and willingness it is difficult in India.

  3. @ Pattu – Agreed, but i believe it is much more difficult in the metros of India. My parents lead retired middle class lives in a small town in Kerala and they get by adequately .But then , they dont depend on a withdrawal rate , but on the investment income from their portfolio ,rental income and a meager state govt pension for my mother:).

  4. I agree too. By withdrawal rate I refer to the rate at which the nest egg (which continues to grow at some rate) depletes. Inflation and longevity will determine when one touches the principal. It will happen everywhere perhaps much latter in the small towns than in the metros.

  5. If we look at most of the Americans investment profile, it boils down to two items i.e. Retirement fund and other is housing.

    In India instruments are plenty and every time I speak to some one, it leads to more confusion at least for me. People talk about Gold (many types), agriculture (farming & land), RE (land, flats, villas, independent houses), Private lending, Chits, Govt schemes (post office), tax sops, fixed instruments, debt, Equity and insurance. There could be many that I missed.

    Talking about inflation, I just analysed my FIL’s lifestyle after retirement. His 4 kids got married and none stays with him. The couples current expenditure is 25% of his last drawn salary as he does not pay any school/college fee, no frequent travel, no medical expenses for the kids, reduced groceries and so on. On his pension 50% of last salary, he is able to save today on reduced salary which was not the case before. Inflation is over blown concept played by financial professional on common public minds.

  6. How the article writer is recommending child plans and pension plans from Insurance companies? We know that traditional policies will not give good returns, and insurance & Investment should not be combined (ULIPs). Am I right?

  7. “with a million US $ in India you can retire at 50…not at 35…”

    Agreed it is not for everyone. I am referring to childless young couples or older ones who live weird lifestyles with no loans and spend at least some of their time abroad taking advantage of favorable forex. This is tough for someone in India to do.

    @ Krish
    Great to know about your FIL. However exceptions don’t make good examples. The importance of inflation is determined primarily by lifestyle, whether nestegg was touched before retirement etc. Most senior citizens have a problem and current middle ages guys have a bigger problem. I personally know of several guys who want their money to last X years in retirement whereas even with US level inflation it will last closer to X/2!

  8. India has a system of taking care of parents by their children. It does not require any retirement plan. which retirement plan gives you the money equal to the inflation. except rent from real estate. nothing. Its all the game of big guys for their life. Please… don’t fall in their trap.

  9. I personally believe inflation has been overhyped by financial planning industry if you look at the normal persons purchase basket food has significantly grown in price but as a proportion to salary the % is too small for a normal middle class young guy in thirties.it is the other lifestyle things which will make the life difficult…

    I am a strong believer that if the inflation goes up the salaries will also go up it may not be equal but they will keep pace..

  10. A pound of beef is cheaper in US than in India! So is wheat, lentils, tomato and apple I believe! The coffee at the mall costs the same. A 2BHK house in west coast goes for less amount than a premium(!) flat in Kochi!

    Seriously thinking about relocating to the US! 🙂

  11. @ Paul – Yes, you are abs right. Gasoline is cheaper as well , if you take that into consideration, and public schooling is free ( no admission or donation fees). Lots of advantages in US:)..but then,disadvantages are there too:).

    @Kannan- Really???? You still believe that children will take care of parents according to the ancient Bharatiya system?

  12. Kannan great answer. De risk by having 5 children. One of them at least will. That is de-risking, that is all.

    if u have ONE kid and that kid predeceases you…what happens?

  13. I have this question long in my mind. Can anyone please clarify this?
    In USA, if the inflation is 4-5% , why can’t they just invest in developing countries like India through direct/indirect investments? By doing so , even if they get back 8% returns in average which is 4% real returns and they can live happily with that passive money.

    Why most of them are not doing that?

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