Your financial road map for 2014

Financial planner Arvind Rao charts out a financial road map based on life stages
20 to 29 year-olds
These investors are classified as ‘strugglers’. They struggle to achieve a balance between savings, spending and investments. This age group should focus on achieving the first step to financial prudence i.e. saving. They will need money to buy a car, home, meeting marriage expenditure, shopping, planning international holidays and what not.Don’t focus on long-term goals (beyond 10 years) but on building a strong emergency fund (in case of hospitalisation, loss of job, etc.) by taking appropriate insurance covers. That said, this is the best time to build your retirement corpus by setting up a PPF account. For all other short-term and medium-term objectives, invest in FDs, recurring deposits, debt mutual funds and tax-saving mutual funds. Investments in direct stocks should be avoided. A term plan will be a good fit for life cover.
30 to 39 year-olds
They can be termed ‘achievers’. They have (should have) achieved stability in their respective profession, and are trying to reach middle-level management cadre. With stable jobs and better salaries, the disposable savings potential rises. However, with a growing family and their needs, the rise in expenditure is exponential. So, most people in this age group today are left with little or no savings, as most income is used for servicing home or car loan EMIs etc. But it’s crucial to continue to save amid EMIs. The emergency fund has to be strengthened and the quantum reviewed regularly.
Focus on medium to long-term goals, especially children’s education and higher education. Most savings should be used to invest in recurring deposits, unit-linked children plans (where the maturity is aligned to the child’s education goals), diversified equity mutual funds and mid-cap equity funds. Beyond age 35, special attention has to be paid for securing medical emergencies by increasing medical coverage and disability coverage. Life insurance cover must be enhanced to provide a higher cover for dependents, liabilities and children’s future.
40 to 50 year-olds
This is an extension of the ‘achievers’ group. Aspirations will rise as income packages climb higher. With the margin of savings going higher, individuals should now focus on short to mediumterm goals like children’s higher education, bigger homes, etc. and on longerterm goals like retirement. Also focus on liability management and plan to reduce liabilities by accelerating repayment. Protection of family through life insurance is the most important objective here and life cover should be suitably enhanced. Risk of medical emergencies also increases and accordingly medical and disability covers should be increased. Attention should be paid towards creating a corpus for long-term medical care.
Investments should be diversified in a mix of gold, focused mid-cap equity funds and sectoral equity mutual funds. Additional savings can be used for making investments in properties, as they could help for retirement savings. Start increasing allocation towards retirement savings. Emergency funds in the form of fixed deposits and cash balances are crucial to meet the needs of a mature family.