Bangalore-based tech professional Krishna Rao, 49, realized this when he was budgeting for a car purchase. The amount he had earmarked for this purchase was almost 60% less than what he ultimately spent on a larger vehicle. So what changed? “Old habits are hard to die,” as Rao says.
“I instinctively stuck to a conservative budget. I changed my mind after getting clarity on my net worth, how my investments were doing, and what my financial future was. Getting this clarity gave me a better idea of what I could afford and what I couldn’t,” Rao said.
A nudge from his financial adviser, Ram Kalyan Medury, founder and CEO of Jama Wealth, a Sebi-registered investment advisory firm, also helped. “My job as a consultant is also to show people that certain possibilities are within their reach without jeopardizing their financial goals,” Medury said. nest in the next five years. So why not spend a couple of extra lakhs on buying a bigger car so that he can enjoy his hard earned money and make good memories with his family. People shouldn’t hesitate to open up to possibilities they can afford.”
In fact, getting clarity on your finances and how to make your money work for your financial goals, as well as your aspirations, is top of mind for Rao when collaborating with a professional advisor. Mint spoke with Rao and his three-year financial guide Medury to understand his personal finance journey.
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power of equity
Spending within his means and saving for his family’s future always came naturally to Rao. What he lacked was an investment-focused approach. “All my surplus savings went into bank deposits and didn’t earn much,” Rao said.
Until 2019, its investment portfolio was heavily weighted towards traditional debt instruments, which included time deposits, traditional insurance plans and Ulips (Unit-linked Insurance Plans). Although she had substantial savings, she did not have a well-defined emergency corpus and all of his savings were being wasted. “At this point, I realized I needed a plan,” Rao said.
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As a first step, Rao, with the help of Medury, compartmentalized and allocated existing savings to different goals. As part of the readjustment exercise, Rao also exited some inefficient insurance plans. This exercise gave Rao the clarity and confidence to tackle his other near-term goals, such as upgrading to a luxury car and buying a small piece of land to pursue his hobby of organic farming.
Over the past three years, its overall equity exposure has increased from 4% to 40%, of which a significant portion is in direct equities. “His stock portfolio has nearly doubled during this period,” Medury noted. “We buy high-quality companies that have a high return on equity, low debt, and consistent growth in sales and earnings over a 5-year horizon. About 90% of Krishna’s direct equity portfolio investment is made up of portfolios focused on large- and mid-cap companies,” Medury said.
Asked how Rao adjusted to this substantial increase in equity exposure, Medury said it wasn’t easy. “He had a high-risk ability since most of his targets are many years away, but he had little appetite. I educated him on how inflation eats up all other investment instruments and only stocks can help you build wealth.” The exhibit.
However, investing directly in stocks can cause problems even for experienced investors in the event of a market downturn, and Rao was no exception. For example, in March 2020, the early days of his direct equity investment, Rao’s portfolio took a major beating and went into the red, he said. “I was concerned, but Ram advised me to stay on the ground, saying fluctuations are an integral part of stock market investing.”
This was also the time that Rao lost his job as a result of the Covid-induced economic uncertainty. However, having an adequate emergency corpus gave him the financial cushion to get ahead. “The emergency corpus took care of the cash flows so there would be no financial hiccups. He was not quick to take any job because of the financial cushion available,” Medury said.
Rao has adequate life and health insurance. You have two pure vanilla term coverages, one from your employer and one purchased personally, 2x your annual gross income. You no longer have traditional life insurance policies. You have combined health coverage of $12 lakh from the policy provided by his employer, in addition to a separate health policy.
In another part of Mint
In Opinion, Dani Rodrik writes about a new economic policy paradigm that could replace neoliberalism. Anoop Singh explains six monthly indicators of recession. Debjani Ghosh argues why India is strategically positioned to be the nerve center of innovation of the world. Long story tells how the rivals are approaching in the second largest automaker in India.
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