A Late Start in the Race
You are in your late 30s and have suddenly realised that financially you aren’t ready for your children’s education or marriage. Worse still, you haven’t even secured a house. Don’t despair, for you are not alone. Many of us start chasing our goals quite late in life. The good news is that you may still own a house, retire comfortably and see your children settle down.
Nevertheless, starting late can never give you the edge you would have got had you started saving early in life. Besides, a later starter may have to make certain compromises. Franklin Templeton Investments gives practical tips on how you can reach your financial goals even though you started to invest late in life.
The Options
There are basically three ways in which you can build a respectable corpus if you took to saving a bit late in life. First, try earning more while keeping costs in control. Second, extend your work life, which means you need to work beyond your normal age of retirement. Last, compromise on your goals a bit. Maybe you may have to settle for a three-bedroom house instead of a four-bedroom one.
Covering Risks
Before you venture out to restore your finances, ensure that you and your family members are well protected. Get health cover for yourself and your family and life cover for yourself to offset any liability should your family have to lay hands on your accumulated wealth to pay off a liability in the event of your demise.
Estimating
Now, identify, prioritise and quantify your goals and consider the expense at current costs. Assume an inflation of 6 per cent per annum and arrive at a figure, adjusted to the years left for the goal. Calculate how much you need to save each year for each of your goals. Unless you arrive at this figure, you will not be able to save effectively.
Catching Up
Your savings requirements would have been much less if you had started saving early in life. But under the given circumstances, save at least 15 per cent of your nett monthly income or the amount you have estimated. Increase it by 5 per cent each year till the desired level. In short, a late starter has to save more than the early birds. To this effect, try cutting down on your spending without affecting your lifestyle much. Do not give into extravagance and impulsive indulgence.
Your primary motto should be to save more to catch up for lost time. Make sure to invest any employment bonuses, accruals and windfalls from inheritance rather than use them entertainment or for buying new gadgets and gizmos.
Start-Late Portfolio
Starting late implies you need to accumulate wealth within a shorter period. Do not attempt generating higher than-normal returns from get-rich-quick-schemes. Just put higher amounts in savings to see you through. Invest generously in equity products but remember that you cannot take too much equity risk because you do not have a long time to recover losses if the stock market tanks. Equities take time to deliver. Invest your savings in equity and debt in the ratio of 65:35. The monthly contributions made to your provident fund can be counted as a debt investment. For your equity investment, consider passive mutual funds. They cut out the fund manager risk while still giving you the equity edge. Stick to 3-5 such funds. You may also consider locking your funds in long-term bank fixed deposits (FDs) or bonds. Avoid direct stocks if you have not invested in them earlier. Else, buy into large-cap stocks after scrutinising their financials.
Start moving your funds from equities to less volatile debt assets about three years prior to your goal. This will help in preserving your capital. Still, keep a portion exposed to equities, ideally through balanced funds, to tackle inflationary impact to your savings. A late start may not jeopardise your goals but will certainly require a more serious commitment to saving.
