Radhika, a young and single IT Professional, got her first job in a big MNC and was asked to work onsite with a client in London. She got a decent salary package, and now with currency conversion her saving potential (If saved in India) has also increased.
Since she has become an NRI in her first job, she was not sure which country (Host or Home) she should invest her surplus money in.
She was also not sure which country she would prefer to live in the future. Returning to India would depend on the job status and her preference at that time.
She felt that with good saving potential she could be able to buy a house in the UK also, but not sure if that would be a good decision. (Also Read: How prepared are you for your home purchase?)
Neither does she want her surplus to be left idle. Besides this, she wanted to have a goal-based investment approach, but she cannot think of any financial goals at this point in time. Maybe in the future when she has some clarity on Life’s direction she may come up with some goals.
She was also not sure if the goals were going to be in India or in the UK or in any other country.
With these thoughts, she approached me for help and guidance. She doesn’t even know how she should set her financial goals? Therefore, in addition to directing her to investments that are ideal for her, she also wanted me to coach her on setting goals.
This is a common challenge with people of her age. And if they become NRI in the early years of their career the confusion doubles.
Now along with the basics of financial planning which is the same everywhere, they also have to equip themselves with International Banking and Tax rules.
With time and experience, everyone gets equipped with some knowledge, but when they do not have any financial goals they tend to invest haphazardly with some vague approach in search of high returns but going directionless.
Therefore, they are misled into buying the wrong investment products under the false notion of high returns. (Also Read: What is a good return on investment?)
Investing in unit-linked insurance or an endowment plan is therefore the way they generally start.
Spending is more appealing to them than saving.
This is why they take out loans.
Because of this, they are banks’ favorite customers.
It’s important to tame this behaviour in the early years, which is where goals are important.
But what if you do not have goals? What should be the starting point? Where and how should you invest? What would be the right approach?
How First time investors can set their Financial goals?
In the absence of financial goals, it’s best to focus on habits and work to establish good financial habits. As an example, if you are fit and have a healthy weight, you should at least follow good eating and exercise habits to avoid gaining weight and stay fit. Likewise, if you are not setting any financial goals, do your best to improve/maintain your financial health. You may check your financial health here by answering these simple questions.
- Keeping financial hygiene is important.
It is imperative that NRIs keep their finances in order, including knowing the tax law, investment rules, etc. Always stay on the right side of the law. Having NRO/NRE accounts, not keeping savings bank accounts, and investing in shares with PIS accounts are among them. (Also Read: NRI Bank Accounts: Everything you wanted to know)
Maintaining financial records at a single location is ideal. You should avoid over investing and under investing. Don’t invest just to save taxes or earn returns. Don’t invest in insurance- Keep investments and insurances separate. You should also not ignore your insurance coverage. You should maintain an emergency fund. Never self-medicate. It is important that you educate yourself so you can ask the right questions of your financial advisor. Don’t forget to file taxes on time. You should always have nominations for your financial investment. - Keeping a budget is a good financial habit.
Monitor your spending structure closely so you can stop leaks (unnecessary spending) when you find them. You will have a lot to spend if you do not set goals to save, which will become your lifestyle and becomes hard to compromise down the road. Eventually, you will have to make even more savings, if delayed now. (Read: Why is it important to budget?)
Your every purchase, not only when you make it but every time you look at it, should have a reason. It is a good purchase if you are happy with it, otherwise, you should be cautious about such purchases in the future.
When you see something you like, do not buy it right away. Give yourself time, at least a week. If it’s truly needed, you’ll purchase it, otherwise, you’ll save the money. - The habit of saving money is also a good financial habit.
You should make an effort to save even if you have no specific goals. If you work on budgeting rules, you will find that at this young age, you are having a decent investible surplus and your savings potential is quite high.
Saving money should be your goal. Saving or investing 40%-50% of your income is a good rule of thumb. The sooner you become accustomed to all of this, the better prepared you will be for the future.
You don’t need to worry about where your money is invested. Equities are a better investment option over the long run; however, if you are unfamiliar with those instruments, go with a bank recurring deposit. Remember that the goal is to build good habits, not to make a lot of money. (Read: What is equity? It’s much more than just stock market investment)
At this stage, if you focus on returns, you will make mistakes. You can also work with a financial planner who can help you decide what investments are best for you. (Read: 3 reasons you need a financial planner) - Keep a safe distance from Borrowing.
Loans keep you away from Reality. In the initial years of your financial life, try to save not to borrow. Try to buy things from your savings, or at least fund 50% of your purchase from your savings only. EMIs are easy to enter and difficult to exit. Never build a habit around loans. Delay your purchase if you cannot afford it. Car, Home, even Iphones can wait, but habits once built will be difficult to break.
No Cost EMIs are attractive but may cost you high if you become habitual to that. (Also Read: 21 money mistakes to avoid) - Never Play around with your money.
In good times like the ones we are experiencing today, every second person wants to try their luck in the Stock market directly. Some want to learn, whereas some feel that they can do better than the fund manager. Every IPO looks like an exciting opportunity. (Also Read: 21 signs of bad money management)
Not because they have learned the art of investing wisely but because the mobile app they have subscribed to has been giving successful stock tips and have generated high past returns. Plus this system is cost-effective too (as there’s no boring advisor and his cost attached).
Some want to go a step up and try Futures and Options. There are many who want to invest in Cryptos. Not because they know how that thing works, but they are impressed with the past returns, and nowadays there are many startups that allow them to invest in the same. (Also Read: Cryptocurrency- Is it worth riding the wave?)
One should learn to differentiate between Luck and Skill. In bull times, it is very difficult to figure this out as everything around is growing. So, the other way to keep yourself safe from fads is to put limits on this experimentation. In Financial markets, you are new and should invest only under Supervision. Else, put a limit to such investments…say 10% of total Investments. (Also Read: Luck or Skill- what matters most in your success?) - Living and enjoying life is a good financial habit. You should not compromise your life. Stay alive.
You shouldn’t have to sacrifice your enjoyment of life to save. But better to define what good life actually means to you. Spend your money on the things you value most. Spend your free time with your friends, Invest in travelling and exploring new places, try new cuisines, read more, sleep, exercise….or whatever you like to do.
In fact, put yourself in a process. If not through goals, then through discipline. You should learn to organize yourself well and manage your time well so that you have enough time to pursue your hobbies. At this age, follow a budgetary approach and budget 10% of your income for your hobbies. (Also Read: 21 Good Money Habits for a Great Financial Life)
All this will help you in maintaining your financial health, and going forward when you zero onto important goals you will already have a decent surplus to provide that for.
Conclusion:
Goals are important for giving direction to savings. If you cannot think of goals, make your regular savings a goal. Save for short-term and long-term travel, save for your financial freedom, and save more now to buy time later.
The whole idea is your financial wellness.
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Manikaran Singal is the founder and Chief financial planner at Good Moneying Financial Solutions. He is a CERTIFIED FINANCIAL PLANNER CM and SEBI registered Investment adviser (Regd no. INA 100001620). He’s having 20+ years of experience in financial services space.
