Bachelorhood

The first stage is bachelorhood. At this stage of life, you are very happy as you have a job and you are financially independent. You can spend money as you wish. You don’t have any major responsibilities. And you want to buy a bike or car, do a destination wedding with your partner, live a lavish life, and so on. But these desires also induce you to spend more than you earn. To avoid this mistake, you can save first and spend later. And your savings should be at least 30% of your income.

When you move to live’s next stage, the previous stage decides whether you will face financial problems. When you are a bachelor, you do not have any responsibilities. Age is on your side. A good way to invest at this stage is to go for mid cap or small cap funds. These funds can be volatile in the short to medium term, but over the long-term can generate enormous returns.

Married With No Kids

The next life stage arrives after marriage. Normally expenses increase considerably during this time. And here, you have to be careful that even if your expenses increase, you save 40% of your income.

Post marriage, you need to align your goals and aspirations with your partner. It also means sharing assets and liabilities which requires clear communication with your partner. Draw the big picture of total inflow, outflow, investments you can make, and the risk you can take. At this stage, you will be able to take less risk than your bachelorhood as you need both growth and stability. Therefore, increasing your allocation to debt or balanced advantage funds by reducing a portion of riskier equity schemes can be a good option.

Apart from investments, you need to focus on securing your family against unfortunate events. Therefore, with additional responsibilities after marriage, the insurance cover needs to be revisited. Buy a pure-protection life plan. Also, change the individual medical cover into a family floater policy with a higher sum insured.

Becoming Parents

The third stage of life is when you become a parent. With this joyful experience comes a higher sense of responsibility and an increase in expenses. Nevertheless, it is important to maintain your savings rate at 30%.

Now when you become a parent you need to plan for certain events. Education for your children, their marriage, and your retirement. In a way, some of your life eventualities are fixed. Therefore, it is important to start goal-based investing for these scenarios as soon as you become a parent. Define your goals, time horizon for the goals, and choose investment vehicles accordingly.

You can divide your goals into three buckets ? short-term, medium-term, and long-term. For your short-term goals like travel, kid’s school fees, etc. you can go for Debt Funds or even Fixed Deposits. Your medium-term goals like buying a car or collecting downpayment for a house are best served by having a mix of equity and debt. So hybrid funds like Dynamic Asset Allocation Funds can be a good option. Lastly, for your long-term goals like kid’s education or your retirement, have a pure equity portfolio.

Retirement

The fourth stage is retirement. By retirement, you would have almost completed most of your responsibilities. So, at this time responsibilities are very less. However, after retirement, your income is significantly lower, or in many cases, it is zero.

Meanwhile, this is not the case with your expenses. In fact, rising medical expenses can increase your total expenses in a big way. Further, your investments should be kept to a minimum with less risk. Therefore, your return on investments, your sources of income, the returns that you wish to generate will depend on the amount you accumulate prior to retirement.