Lifestyle creep: This is a problem that many people struggle with. For others though, lifestyle stagnation is a real issue. For starters, lifestyle creep or lifestyle inflation is a pattern when discretionary spending by people on luxuries becomes the norm as their lifestyle upgrades. Lifestyle stagnation is a situation when a person’s income and purchasing power increases with career advancement, but they get stuck in a low spending class and hold back from meeting the aspirations within their reach.
Krishna Rao, 49, a technical professional from Bangalore, realized this when he was preparing the budget to buy a car. The amount he set aside for this purchase was almost 60% less than the amount he would have spent eventually owning a larger vehicle. So, what changed? “Old habits die hard,” as Rao says.
“I instinctively stick to a conservative budget. I changed my mind after gaining clarity on my net worth, how my investments were doing and what my financial future looked like. Gaining this clarity gave me a better idea of what I can and can’t do,” Rao said.
a push from her financial advisorRam Kalyan Meduri, 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,” Meduri said. “Krishna’s financial goals are clear, she is on the right track to achieve those goals and will have a vacant Nestor in the next five years. So, why not spend a few extra lakhs on buying a bigger car so that she can get her hard earned money? and make good memories with your family. People should not hesitate to open up to the possibilities that they can afford.”
In fact, getting clarity on your finances and how to work your money towards your financial goals as well as aspirations is the main route for Rao to collaborate with a professional advisor. Mint spoke to Rao and his financial guide of three-year-old Meduri to understand his personal finance journey.
power of equity
to spend within their means and being saved The future of his family always came naturally to Rao. What he lacked was a focused approach to investing. “All my surplus savings were going into bank deposits and not earning much,” Rao said.
As of 2019, his investment portfolio was inclined towards traditional debt instruments, including fixed deposits, traditional insurance plans and ULIPs (unit-linked insurance plans). Though he had substantial savings, he did not have a well-defined emergency fund and all his savings were getting wasted. “At this point, I realized I needed a plan,” Rao said.
As a first step, Rao, with the help of Meduri, divided and assigned existing savings into different goals. As part of the re-adjustment exercise, Rao opted out of some insurance plans which were not efficient. The practice gave Rao the clarity and confidence to reach his other short-term aspirational 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, their total equity exposure has increased from 4% to 40%, of which a major portion is in direct stocks. “His equity portfolio has almost doubled during this period,” explained Meduri. “We buy high quality companies that have high return on equity, low debt and consistent growth in sales and earnings with a 5-year horizon. Nearly 90% of Krishna Direct’s stock portfolio comes from large- and mid-cap focused portfolios. made,” said Meduri.
When asked how Rao adjusted this substantial increase in equity exposure, Meduri said it was not easy. “He had high risk appetite because most of his goals were many years away, but he had a low appetite. I taught him how inflation eats into every other investment instrument and that only equities can help him earn wealth.” The fact remains that Rao had already dabbled in the stock market, and Meduri had risen before. Also did a target setting and asset allocation exercise. Exposure.
However, direct stock investing can bewilder even seasoned investors in the event of a market crash, and Rao was no exception. For example, in March 2020- early days of his direct stock investments, Rao’s portfolio took a big hit and went deep red, he said. “I got worried but Ram advised me to stay grounded, saying that volatility is part of investing in the stock market.”
This was also the time when Rao lost his job as a result of the economic uncertainty induced by the Covid. However, having a sufficient emergency fund gave him the financial cushion to overcome it. “The emergency fund took care of the cash flow, so there was no financial shock. He did not rush to take any job because of the available financial cushion,” Meduri said.
Rao has adequate life and health insurance. She has two pure vanilla term covers – one from her employer and the other purchased personally – at 2x her annual gross income. He no longer has traditional life insurance policies. They have joint health cover 12 lakh from a policy provided by your employer, in addition to a standalone health policy.
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