Wednesday, January 30, 2013

How do we start the wealth journey – here is one good example:


He was from a middle class business family from UP. He completed BBA in his home town and worked for some time in his family business before coming to Bangalore to get an MBA from Christ University Institute of Management.

Like most MBA’s in the institute, he landed a good job – and started working from May 2012.

He had a monthly take home salary of about 35 K. As he lived alone, his expenses were limited and he could easily save. He also did not have any liabilities like education loans. So he started his wealth journey in earnest by investing time to learn about mutual funds and real estate investments

For his expense tracking, he used an android application called Expense tracker – he found it easy to use and he could export the data to the financial planning sheet in his laptop.

It took him six months to be confident enough to take an investment decision. What I like about him is that he took a decision and then came to me to validate his decision (most students come to me asking for advice about where to invest – he asked me if his MF pick was correct –and it was correct).

His monthly savings now automatically go into three MF’s through the systematic investment plan - he invests in UTI Opportunities fund, SBI Magnum Emerging Businesses Fund and Birla Sun Life GenNext Fund.  Each of these funds has a great track record for the past three years, have beaten the sensex and have been ranked well by the industry. 

He also took a term insurance from Bharati Axa for Rs 1 crore cover – he took it online (that is cheaper) and that too for 45 years term – How much is the premium? Well you guess - there are premium calculators on the websites -go ahead and surprise yourself.

He did not stop there. He applied for a home loan from HDFC and got one in a few months. He started to look at properties in his hometown (as he was not sure if he will be in Bangalore for long) – identified a top builder and a new flat complex that was in the outskirts of his town – there was a new large hospital coming up in the neighbourhood as well. He took loan from his parents for the 20% advance and signed up for a 2 BHK flat for about Rs 35 lacs. The rates in the locality have since appreciated by 20% - the emi’s will start soon and he has the ability to pay the emi’s. The flat will be ready by mid 2014 and will hopefully start getting a rental income by end 2014.

What did he do right –Tracking the expenses, investing time and effort in educating himself about the opportunities available, starting  SIP’s in three good funds,  taking term insurance for a 45 year term,  getting a home loan approved, taking loan from his family for the down payment for the flat, identifying a good builder, identifying a good location and then signing up.

What he could have done better – well I can’t find one area where he could have done better. If you have any suggestions on what he could have done better - please tell me in the comments column below