FINANCIAL PLANNING FOR A YOUNG SALES MAN

......learnings from mistakes I did that you can avoid...

So what makes the life of the sales man a little different. Yes, nobody has a clue to what will show up in their monthly salary...(hmm..mostly all... due to high incentive component in their CTC). Secondly this tribe is very ambitious when it comes to lifestyle. And thirdly, they live on an edge as they enter their 40's, role uncertainty hits them unless they have made reasonable progress into the leadership domain. Ok...let get started..

1. Pick a Bank and have 3 accounts. One for all your office reimbursement and expenses along with a credit/debit card that you will not use for any other purpose. Your objective is to ensure that this account netts to zero. Yep, you may end up with some positive depending upon how your per diem/batta rules are. The second account is for your inflow a.k.a Salary and as you progress, rentals, investment income etc. This is also where you will make all your investments from. The third account is for all your domestic expenses. Have 2 debit cards(..don't forget your spouse) and 2 credit cards. Do not have accounts in multiple banks and do not have multiple credit cards.
2. Setting up a basic Fence - Go get a reasonable term insurance. Look for the cheapest available with the largest cover and based on your need and dependents. The rule here is not to mix investment with insurance. And also get yourself covered with a reasonable health cover, if your office does not offer one. As you grow older, keep a close watch on these 2 for adequacies. The faster you take these, your premiums are reasonably lower. Do not invest in insurance that promises returns.
3. Calculate your monthly outflow including the monthly savings that you need to make. Early in the career, in sales, you may be in a situation where your monthly cash flow requirement is larger than the minimum salary that you receive in a month. Make an assessment of the minimum incentive that you will earn and when that will typically hit your bank account. For most organisations it is quarterly. Your 3 month cash flow should not be more than your total 3 months planned outflow. Use credit card for your expenses, but pay-up completely on due date. Avoid debit card as much as possible.
4. Begin Investing/Saving early - 10-15% of your salary is a good number to start. Just remember a couple of things . Higher the risk more the return. You need to move from low risk to high risk as your salary and hence disposable income increases over time. You get better returns by continuous investment and not by timing the market. What this means is that, keep investing a fixed amount in a fixed period. Do not bother about, where the market is.

Where should I invest - anything that I say from now on is only my experience and if you decide to follow, is at your own risk

1. If you do not have your own house, plan for a flat/house which fits you're affordability. Plan EMI that squeezes you a little but will ease out when you get your next increment. As a rule, I think real estate does not provide good returns and hence stick to buying a house that you want to stay in. You can sell and buy a larger house as your needs and income grows. And a philosophy from my wife that I now understand " Don't buy a house that you cannot clean yourself".
2. In your early years, PPF is a good investment to make. I did not do this, but have friends who are benefitting by topping up the PPF investment beyond the mandatory that the office does. I have not used fixed deposits ever. This is a good nest that gets build in time. Do not withdraw from this till you retire.
3. As you progress, start investing in mutual funds in the form of SIPs. There are some very easy to use platforms that do the research for you and pick and choose a mix of debt and blue chip funds where the risk is low and can provide returns in the 10-11% category.

You should be fine with the above till you hit your late 30's

9. By now your disposable income should allow you to take more risks and hence add some mid cap and small cap mutual funds to your portfolio. Do not switch funds just because your neighbours funds are giving better return. In long term, they all provide similar return.

10. When your investments have crossed 25 lacs, you now have a choice to invest in PMS or Portfolio Management services which have reputation of returning 18%+ in long term. Do some research and pick the top reputed ones to shift a part of your investments to. The trick is to keep an overall balance between your low risk investments / medium risk and high risk investments. Remember PMS is for longterm. A minimum of 3-5 years before you will appreciate the returns.

11. Beyond this there are many options for people who can take high risks and have high disposable income. AIF or alternate investment funds with a threshold of 1 cr, Private equity players, investing is startups. Investing in stock market yourself. Investing in commercial property. Look around and you will find multiple things to do.

Most of the above has been a, try, fail and succeed story for me. Lastly, I believe in the India growth story, irrespective of the short term, the economy is headed north in long term due to unlocking of the demographic dividends and the strides that we are making in education and technology. This will only get the stock markets to return better than it ever did.

Best of luck,,,,,,,,Share if you you know a salesman.....comment to add-on ideas or for positive criticism.