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Involve all members in financial, investment planning to prepare for any eventuality

Involve all members in financial, investment planning to prepare for any eventuality.

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Involve all members in financial, investment planning to prepare for any eventuality
Kiran Telang, Director, Dhanayush Capital Advisors

A friend of mine, Rajiv, died at the age of 35, leaving behind a distraught 30-year-old Rajni, his wife, their daughter Naina, who was barely five, and his parents. It is during such situations that we confront our own mortality. We are forced to think whether we have done enough for our family, both emotionally and financially.

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Daily life robs us of the time we can spend doing things that matter to us but having a sound financial architecture can give us that mental peace to take time out from our busy lives. To create a strong financial foundation for the family, we need to keep in mind two things. The first is to focus on things that matter the most to us and plan accordingly. The second is to remember the basics of investing. Trying to invest in any other way will lead to confusion and will need sorting out at a later stage, which might turn out to be expensive.

Families can have varied composition, dependencies, goals and resources. Hence, the pattern of investing has to be customised. There is no one solution that can fit all. The basic idea is to have sufficient strategies in place to ensure protection, growth and distribution of assets in a convenient manner. The first step would be to plug all possible sources that can deplete wealth by transferring the risks. This would mean having sufficient health and life insurance in place.

Then we can look at creating more assets through investments. Keeping things simple helps. While all short-term goals should be aligned with investments which are debt-oriented (fixed deposits, recurring deposits and debt mutual funds), all long-term investments should be aligned with growth assets (equity and real estate). Indians love to buy gold. But this is more of a personal-use asset and not an investment. It will not create significant wealth unless bought in large quantities and traded. Each asset class and product has its own set of advantages and disadvantages. Asset allocation becomes important as an overload of any particular asset can impede the chances of real wealth creation. Different asset classes perform at different times and it is not possible to predict timings.

The basic idea is to have sufficient strategies in place to ensure protection, growth and distribution of assets in a convenient manner.

In terms of investments for various family members, each can invest as per their own income and goals. While living expenses can usually be borne out of regular income in the form of salaries, professional or business income, the other goals may need to be planned and provided for from investments over a longer period of time. This could be in various baskets. For instance, funds for downpayment of a house or buying a new car should be funded from the short-term goals kitty, while other goals related to future needs of children and your own retirement must be funded by growth assets.

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For seniors in the family, if they have their own income, they need to look at 'keeping their income above inflation for a lifetime'. Their income and other assets should be enough to support any medical exigencies. They would also love to shower gifts on their children and grandchildren. Leaving a legacy for children is a dream of most parents. But most children would rather want their parents to live comfortably than strive to economise in order to leave a legacy for them. Seniors would need a combination of debt and equity in their portfolio to meet their needs and wants. The children in the family should also be involved in the finances. They can start learning the basics of money, budgeting and investing by using their pocket money. This will help them become responsible with their money as adults. Both spouses also need to be involved in managing family finances. This will ensure stability in case of any eventuality when one has to manage things single-handedly. The investments could again be a combination of debt and equity. The main requirement in such cases would be that the products should generate income when required.

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Having these things in place can ensure that we fulfil our responsibilities and are also free to do things that we always wanted to pursue.

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