Earn for a lifetime from your short-term wealth

Financial planning is never an easy job even for those with regular incomes. The job becomes tougher if the individual has to plan for a lifetime of expenses from a limited earning timespan. This may seem a challenge, yet it is common for sports persons, models, and others in the entertainment industry to have a life where the earning years are few, but highly rewarding. 

Given the mismatch between the duration of productive years and the years of only expenses, there is an acute need for financial planning. For such individuals, the money earned has to be put to work in such a manner that it supports the individual for the rest of his life. “It is a case of sudden wealth for most of such people and it is important that they avoid any impulse decisions regarding both spending and investment,” says Zankhana Shah, chartered accountant & certified financial planner and head of Moneycare planners. Clarity on long-term financial goals helps in taking informed decisions. 

Spending 

Spending is not a problem when money is coming in. But there is a need to ponder over lifestyle. While purchasing a house one should also consider the monthly maintenance payable. Many a times, impulse purchases culminate into loss of lifestyle in the future as there is no income to support the same in future. Hence, there is a need to clearly define the lifestyle of an individual. 

Investments 

There is a need to strike a balance between growth needs and income needs. A combination of equity and debt may serve the purpose. Excessive focus on high-yielding assets stating long-term security is also a problem because there is an income need in the short run. A point to note: the high yielding assets also come with higher volatility and hence may not serve the income need. 

The assets that offer lower yield meet the income needs better due to lower volatility. Here, debt securities with fixed coupon pay off. One can also consider single premium deferred annuity plans with the deferment period ending with end of the earning period. Real estate investments can be considered with a clear intention to earn rentals which is again a periodic income. Though, this is an option to be considered with an expert handholding. 

Financial liabilities 

Loans can be a real drag on one’s financials in times of no earning. Hence, in no circumstances the loans should live beyond the active working life. Temptations such as tax breaks should be kept away when it comes to borrowing. 

Insurance 

Short earning span makes it even more important that insurance needs are satisfied in totality. Death can mar earnings and make the life miserable for survivors. There are special covers available for dismemberment, disability, which one can avail of to avoid loss of income. For risk covering, single-premium products are better suited. One can also consider long-term cover where the premium payment is made in limited installments. 

Alternate occupation 

While working, there is a need to identify an alternate occupation with minimal investments. This ensures that there will be some income post-retirement. However, the investment needs of the new occupation should not eat into the accumulated kitty.