A first time investor’s guide to a volatile 2022
Background
First Job Youngster
Wish To Invest Early
Confused About Investing Options
Case Characteristics
- Mr. X is a 22 year old digital marketing professional, who recently graduated from college. This is his first serious job after completion of his studies just three months ago.
- He’s employed with an Ahmedabad-based digital agency for the monthly salary of Rs.25,000 per month.
- He lives with his family of 4, which includes one earning parent, one younger sibling and a housewife mother.
- While his father contributes majorly to the family’s income, he has been contributing Rs.10,000 towards monthly house expenses since his first month at the job.
- He commutes to work on his motorcycle he owns from his college days. Currently his fuel expenses reach anywhere up to Rs.3,000.
- This is his only major expense, since he doesn’t have to spend any money on food and carries his lunch from home.
- He wishes to start investing and growing his money instead of simply saving it up in his salary account.
Fascinating Findings
- There are no major loans on Mr. X’s name, since he had completed his higher education in the city itself and didn’t have to take an education loan for college.
- There are no additional benefits or incentives like Employee’s Provident Fund, Health Insurance or Mediclaim provided to him in his current job. He gets his fixed pay credited every month without any deductions.
- He does have unplanned expenditures every month, like going out for dinner with friends, contributing towards friends’ and family’s birthday and wedding gifts, ordering in food at house parties, etc. These expenses averages up to Rs.4,000.
- There are various other unaccounted cash expenses like having tea and snacks at roadside stalls with colleagues, paying for someone’s order with the promise of getting paid back later, etc.
- Currently, he ends up saving about Rs. 3000 per month after deducting all his expenses.
- He has life insurance in his name, but it was taken by his father back when he was a kid. The quarterly premium for the same is Rs.3,000.
- He aspires to buy a car for himself, probably by taking a vehicle loan. And hence, requires a decent sum on hand to put down while purchasing a car.
- Any good sedan would cost him Rs. 7 to 8 lakhs, hence he needs to plan well.
Actionable Alternatives
- The first thing we suggested to Mr. X is to check if his income fell in the tax bracket. We further advised that he get some kind of a tax saving deduction in the form of an investment, like an ELSS (Equity Linked Saving Scheme). ELSS is a tax-saving investment under Section 80C of the Income Tax Act, 1961 and you can claim a tax rebate of up to Rs. 1,50,000 a year, saving up to Rs. 46,800/year in taxes.
- We noticed that Mr. X had a simple life insurance which gave him very limited coverage. We advised him to check his eligibility for a Term Plan for insurance and a Medical/Health Insurance. This, because in a term life insurance policy, the younger you are, the lower the premium. It also provides tax benefits on the term insurance premium. Apart from that, term life insurance provides a longer lifetime coverage, the value is higher, and compensates for permanent disability in some cases.
- Next, we advised him to get his SIPs (Systematic Investment Planning) started. Mutual Fund SIPs start as low as Rs.500 and he can eventually increase the sum as his income increases too.
- An important advice given to Mr. X was to ensure he saves up an amount that is equal to the value of at least 3 months of his salary. This will act as funds for any emergency expenditures.
Remarkable Results
10-12% Returns
Investing in ELSS & Mutual Funds through SIPs will give him returns of up to 12%
4 Years To Buy Car
To save up for his car, he will have to continue investing till at least 4 years.
Fallback Plan
With at least 3 months’ worth of savings on hand, he can switch to a higher paying job eventually, instantly.
