Why Millennials Should Not Ignore Financial Planning
Mar 07, 2019

Author: Deepika Khude

(Image source: The Digital Artist on pixabay.com)

If your internet is down on a Sunday afternoon, then the two most common resorts of entertainment on TV would be Sooryavansham on Sony Max and Tarak Mehta ka Ooltah Chashma on Sab TV.

In Tarak Mehta ka Ooltah Chashma, Mr Atmaram Tukaram Bhide, (the secretary) with his patent line, 'Humare Zamane main' echoes the ideologies and ways of his times and how the millennials are no longer as serious about their lives as people were 30-40 years ago.

My father is the Atmaram Tukaram Bhide of our family. Just the other day, he was lecturing my brother and me on the value of money and how we, the millennials, care so little for our own hard earned money and spend it needlessly on shopping, movies, games, etc. instead of saving money.

The 'lecture' went on for the next 30 minutes (though it seemed like eternity!) , and the conclusion was that if we continued splurging money on wants, we would have to be dependent on loans and debt to finance our needs. At which point my father categorically stated, 'I'm not going to lend you both any money in the future if you continue down this trajectory of wasting money'. 'For you, the new millennials, everything is fun, you have no responsibilities and go about living your life like nomads'.

[Read More: Millennials- Are You Sensibly Investing In Mutual Funds For A Bright Financial Future?]

Once, the lecture was complete, I realised, that Mr Bhide, I mean my father, wasn't entirely wrong. The careless attitude of a majority of us, millennials, when it comes to finances is the reason why the peer-to-peer lending space is growing manifolds and the credit card debts are piling up, courtesy the 'shop-now-pay-later' schemes.

When I look around my own office, there is a box almost every day from Flipkart, Amazon, or Nykaa! Everyone commuting on the local train, metro, or bus is busy shopping and wish-listing items to be bought. The onset of e-commerce might just have spelled doom for the art of saving and investing.

Being an Investment advisory office, my colleagues here are at least a little aware of the importance of savings and investing. The other day, my colleague, Swati (26) asked me to create a financial plan for her. Swati is getting married in May this year and wanted to get a head start on her financial goals. She and her fiance can manage to save Rs 40,000 per month and would like to achieve the following goals in addition to her retirement goal.

Table 1: Goal Planning

Goal Years to the goal Current Value Future Value SIP Required
International Vacation 3 years 3,00,000 3,99,300 10,021
Child's 1st Birthday 5 years 5,00,000 8,05,255 10,887
Child Education 23 years 25,00,000 223,85,756 9,264
Child Marriage 28 years 10,00,000 144,20,994 2,783
Retirement Goal 19 years - 8,38,71,503 7,046*
(For Illustration purpose only)

By investing in a SIP of Rs 32,954 per month, Swati can go on her dream vacation as well as finance her child related financial goals.

[Read More: Best SIPs To Invest in 2019]

Coming to the most important goal - Retirement, Swati wishes to retire early at 45. Post retirement she wants to embark on a modest vacation every year and maintain her standard of living. Her required retirement corpus would be:

Table 2: Retirement Planning

Family Member Swati Santosh
Goal Name Retirement
Goal Date 1-Apr-38

Age (at present) 26
Retirement planned at age... 45
Life expectancy 80
Monthly Household Expenditure 25,000
Time to retirement 19
Expected inflation per year 7.00%
Monthly Expenditure - at retirement age 90,413
Annual Expenditure at ret. Age 10,84,958
Provision for travel, healthcare annual exp. 3,00,000
Travel, healthcare will inflate by 8.00%
Travel, healthcare at time of retirement 12,94,710
Annual expenditure at retirement 23,79,669
Post retirement inflation 7.54%
Post retirement life expectancy 35
Expected return post retirement 7.50%
Corpus required at time of retirement 8,38,71,503
(For Illustration purpose only)

To achieve Rs 8.38 Crore in the next 19 years, Swati would have to invest Rs 52,188 per month. Her current surplus of Rs 7,046 would help her accumulate Rs 91.23 Lakhs on retirement. Once her international vacation and child's 1st birthday ceremony goal is achieved, she will have an additional savings of Rs 20,908. This will help her accumulate an additional corpus of Rs 1.42 Crores. So, in total Swati will have a retirement corpus of Rs 2.33 Crore.

She and her fiance also contribute Rs 13,000 (employee contribution) per month to EPF and on retirement their collective EPF corpus would be around Rs 2.43 Crore on retirement. She still has a deficit of Rs 3.61 crore.

Table 3: Planning for Financial Freedom

Year Savings Investment
for goal
Surplus Corpus
1 43,200 40,000 3,200   41,668
2 46,656 40,000 6,656   1,35,034
3 50,388 40,000 10,388   2,92,011
4 54,420 40,000 14,420   5,26,712
5 58,773 40,000 18,773   8,55,831
6 63,475 40,000 23,475   12,99,080
7 68,553 40,000 28,553   18,79,704
8 74,037 40,000 34,037   26,25,077
9 79,960 40,000 39,960   35,67,397
10 86,357 40,000 46,357   47,44,492
11 93,266 40,000 53,266   62,00,767
12 1,00,727 40,000 60,727   79,88,299
13 1,08,785 40,000 68,785   101,68,111
14 1,17,488 40,000 77,488   128,11,658
15 1,26,887 40,000 86,887   160,02,553
16 1,37,038 40,000 97,038   198,38,574
17 1,48,001 40,000 1,08,001    244,34,005
18 1,59,841 40,000 1,19,841    299,22,342
19 1,72,628 40,000 1,32,628    364,59,459
(For Illustration purpose only)

Assuming that Swati's salary consistently grows at 8%, which she diverts to her financial savings, she would end up accumulating Rs 3.64 Crore, thereby achieving her ultimate goal of retiring at 45!

'Yes'! Screamed an ecstatic Swati when she saw how achievable her financial goals could be. At this point, I could almost hear my father saying, 'Maybe there's hope for you millennials after all!'

Maybe there is hope. But hope alone is never enough. Financial Freedom needs work, dedication, and at times sacrifices. And while living in the moment matters, sacrificing a little in order to gain a lot matters more. As for the millennials, you can go on yearly vacations and shop till you drop as long as it is accompanied by a prudent planning and investing strategy. Just remember when it comes to investments, the early bird does get the worm!

So, don't wait to turn 35 or have kids or marry to set your financial goals. Unlike voting or driving, there is no age limit to start saving and investing. Dave Ramsey (American best-selling author) rightly said, 'You must gain control over your money or the lack of it will forever control you'.

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Till then, Happy Planning!

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Mar 08, 2019


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