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    How to resolve financial dilemmas at different life stages

    Financial dilemmas at different life stages

    Financial dilemmas at different life stages

    Text: By Chandralekha Mukerji, ET Bureau

    Limited savings, but numerous responsibilities. That’s life for you. And some of these goals or responsibilities will run parallel to each other. For one, while you can’t delay saving for your retirement, you can’t afford to ignore your child’s future either.

    Since increasing your pay or reducing expenses beyond a limit can’t always be an option, we often struggle with financial choices. We try to figure out the common financial dilemmas that you will face during different stages of life and tell you how to make efficient choices and optimise your allocation.

    20s: Balancing debt against college choice

    20s: Balancing debt against college choice

    You are probably eyeing a course to help you up the corporate ladder. But if you do not have scholarship and your parents have not saved enough, is it worth taking a big loan? “Don’t start your working life with a massive debt. Defaults could ruin your chances of borrowing later,” says Anil Rego, CEO, Right Horizons, an investment advisory company.

    Be conservative when analysing your employment potential. It make sense to work for a few years, save some money and then apply for a course.

    Tip: Be conservative, The EMI for the loan should not be more than 50% of the potential monthly salary that can be landed after the degree.

    30s: Managing home loan or child future

    30s: Managing home loan or child future

    You would choose your child’s future any day over your dream house. It even makes financial sense to delay buying a property. However, advisers warn against delaying the purchase so much that your debt continues into your retirement.

    “After retirement, living in a rented accommodation can be stressful. Also, it is not a good idea to retire with debt,” says Priya Sunder, Director, PeakAlpha Investment, an investment advisory firm. Besides, the house can be a collateral to help you borrow in case the education savings fall short.

    Tips: Buy a smaller house, which can also be a collateral for a cheaper education loan. Or rather than taking a huge loan, live on rent and use SIPs to build a corpus for both goals.

    50s: Child’s higher education and retirement

    50s: Child’s higher education and retirement

    The deadlines of these two big goals may collide. While neither can be ignored, financial planners say your retirement corpus is the priority. Your child can get a scholarship or take a loan. However, the bank won’t extend you a credit because you do not have sufficient savings post-retirement. Even if they do, a personal loan will always be costlier than an education loan.

    “An education loan creates a sense of financial responsibility in the child, allows you to keep your assets and gives you additional tax benefits,” says Bhuvana Shreeram, Certified Financial Planner. Some may argue it is better to work longer and save more than depend on an educational loan.

    Tip: If you have built enough assets, your child can always take a education loan, where the asset can stand as collateral.

    60s: Investing in equity or in debt options

    60s: Investing in equity or in debt options

    Keep moving your investments earmarked for retirement towards debt as you near 60. However, that should not stop you from reinvesting your kitty in equity options. Considering they are your best chances to beat inflation, most advisers recommend keeping a portion of the nest egg in equities.

    Although, the case for equities becomes stronger if you are still earning after 60. “Depending on your risk-taking capacity and availability of funds, you can invest 15-25% in equities via SIPs or in hybrid funds to beat inflation. However, you should have an investment horizon of at least five years,” says Pankaaj Maalde, Certified Financial Planner.

    Tip: You may continue your monthly SIPs post-retirement, provided you do not depend on such investments for your annuity income and have an emergency fund in place.

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