What is the right age to start planning for achieving financial freedom? Where should young people invest to become financially free by the time they retire? Is it that those who don't earn too much money every year can't think of financial freedom?
Should you invest in real estate property or should you go for a mix of mutual fund and share market investments?
In a chat with readers on August 17, wealth management expert Sanjiv Mehta answered these and many more queries related to generating wealth and achieving financial freedom.
For those of you who missed the chat, here is the transcript.
Part I: Monthly savings = financial freedom
dv asked, Hi Sanjiv, Our intake is Rs 1,40,000 pm, Save almost Rs 50K every month which we keep as cash and pay for a flat on a construction linked plan. other than that we pay for the house we are now, housing loan emi of Rs 30K, Kids education plan Rs 10k, car emi Rs 7k. are we going OK?
sanjiv mehta answers, hi dv, saving level is pretty good and is also going towards real estate which produces good returns over a long term. it seems fine except that it will be good to diversify your savings in asset classes other than real estate too.
popli asked, SIR I AM 30 looking at my portfolio i have ELSS MFs for Rs 70k icici bk physical 40 shares Rs 1 lac in PPF real estate in mumbai 2 houses Rs 17 lacs each right now i have Rs 2 lacs in my savings bank account; i am confused wether should i buy house in Nasik or invest in stocks (in both cases i am willing to hold for more then 5 yrs pure investment) companies which i intend 2 invest in r REL; RPL; PUNJLYOD; SUZLON; INFOSYS; WIPRO; ONGC; RNRL; BSEL INFRA REALTY; IDFC; ROYAL ORCHID HOTELS; BHARTI AIRTEL.
sanjiv mehta answers, investing in stocks will give u good diversification. investing in individual stocks or equity funds is essnetially a decision of control vs. convenience. if u r adequately researching all these stocks, then u can invest on your own or better to go thru a diversified equity fund. imp. thing is that 3 principles of diversification, appropriate time horizon and valuation remain important in both routes.
mand asked, with huge expenses charged by insurance products is it advisable to take term policy for risk mitigation and invest the rest of the corpus in mutual funds?
sanjiv mehta answers, yes, term insurance as a pure protection product is much better. it also enables an adequate cover by not linking it with investment.
ksk asked, Is this right time to buy a flat in Hyderabad? Now rates are in peak. Are there any possibilities to come down the prices once salaries in IT and IT supported stabilised?
sanjiv mehta answers, real estate is not a very uniform market with differentiation not only in cities but in sectors and going down to individual units. while some pockets are overvalued, demand is continuing to remain strong and certain areas will appreciate further. by intensive research and especially since it is concentrated and relatively illiquid invetsment, u can still find good opportunities.
RameshB asked, Hello Sir, I am 28 years old, married and my current income is around 4.5Lakhs /annum and expenses of around 2Lakhs/annum. What should be my strategy for investing & ratio of equity / debt instruments so that I can be financially independent by the age of around 55. My risk appetite is moderate.
sanjiv mehta answers, a major part of the yield enhancing part (pls see liquidity and safety in an earlier answer) should be predominantly in equities (80%) considering that u r 28 years old and we are in a high growth economy.
mamatha asked, My family facing lack of finance, in our family myself and my husband and my sister are the earning persons. that is not sufficient, I am a graduate but I am getting very low salary. What to do?
sanjiv mehta answers, if u look at yr expenses carefully, u will find ways to save at least 10% of combined earnings. this 10% if invested well can go a long way in converting this defeatist feeling into that of joy. u must follow the principle of pay yourself first which is setting aside 10% as soon u recieve yr salary. the other aspect of bolstering yr income could also be looked at by looking at yr strenghts and adding to yr skill levels.
prem asked, Sir, i am 30, M, earning Rs 37k per month...is it good option to go in share market and mutual fund to become financially free, is it good to take loan and buy a home, and give it partly to rent? currently i am in rent house. is this the way to become financially free or can you suggest more better ways?
sanjiv mehta answers, it will be a good idea to go for yr own apt. with an EMI and also to invest in equity mutual funds. disciplined saving and investing in these 2 asset classes will be a good first step towards financial freedom.
Selvi asked, Sir, is it wise to invest in an apartment in a place like Chennai in a decent locality?
sanjiv mehta answers, answer is identical to an earlier one abt real estate in Hyderabad.
trehanhitesh asked, i m earning Rs 2.75 lakhs pa how should i plan Rs 1,00,000 under section 80C?
sanjiv mehta answers, majority of it should be placed in equity linked saving schemes.
ajey asked, iam now 62 years old. how much exposure to equity is advisable?
sanjiv mehta answers, hi ajey, once u hv invested in safe schemes which generate a sufficient monthly income and take care of yr monthly expenses, rest should be invested in assets like equity which by their superior returns will make your life comfortable for a long period of time.
Pota asked, Sir, am 57 years young. Fit attitudinally, physically, mentally. Have Rs 6,00,000/-in Post office, Salary Rs 25K. Provident Fund Rs 170 K. Property worth approx Rs 1.6 crores. Should I hold on to the property? At times I feel I should book my profits in property and live with my wife happily ever after. By the way, I have two daughters. One married and working, the second working. Both reasonably well of financially.
sanjiv mehta answers, depending on what yr future interests are, the alternative of moving to a smaller place and having more liquid assets can enhance quality of yr life. it is the way you define yr aspirations - if a big house figures prominently in yr scheme of things, then u shud consider it carefully.
shekhar asked, Can you define financial independence please?
sanjiv mehta answers, for me the best definition is when passive income is sufficient to sustain yr desirable lifestyle. when u r no longer dependent on active income. it is possible to achieve this state whereof sacrificing current lifestyle by just saving 10% of yr current income and investing it well.
sanjiv mehta says, it was very enjoyable to interact with all of you and i look forward to chatting with u again.
Part I: Monthly savings = financial freedom
Dr Sanjiv Mehta is the managing director of Finance Doctor (www.financedoctor.biz), and author of the recently published book, 'Winning The Wealth Game: Cricket Strategies For Financial Freedom'.