Alongside fine-tuning a business plan for startup, use your gardening leave to build a financial plan for yourself for the next three years.
By Gaurav Rastogi
As the economy flourishes, choosing to become an entrepreneur to solve a problem with a high conviction has become mainstream in India.
The rising prosperity of the middle class has allowed a new generation of entrepreneurs in the country who are less restricted by the pressures of finding and keeping a well-paying job.
According to the Economic Survey 2015-16 tabled by finance minister Arun Jaitley, the country has had more than 19,000 technology led startups.
We already have the third highest number of tech startups in the world. With a lot of country specific issues that can be efficiently solved using technology, this number is going to grow in the coming years.
It helps that from a personal and professional fulfillment perspective entrepreneurship is one of the most rewarding 'job' you will ever undertake.
While most entrepreneurs rightly focus on product development, target market, go-to market strategy, and investors, they tend to neglect personal financial planning.
This could leave a budding entrepreneur vulnerable and force them to drop the startup pursuit in a few years to get back to a regular job.
For a startup founder, is it important to remain financially comfortable while they focus on building their business from scratch.
A few simple steps, before you take the plunge, will help set your financial house in order and will give you the peace of mind to pursue your true calling. Here are a few tips:
The 3-year Budget: Just as you would with your venture, have at least a 3-year personal financial budget before you take the plunge.
Assess your monthly housing, food, clothing and transportation needs honestly.
Get comfortable with the amount you need to spend over the next three years where your income may be severely limited.
Look at avenues where you can optimize your expenses. Do look at any loans that you have and see if you can foreclose them.
Or at least explore with the lender if the rate can be reduced so the EMI comes down.
Questions to ask yourself - Can you move to a smaller apartment? Do you own two cars and you can let go of one and start taking a shared taxi more often? How much are you spending on eating out and drinking with friends?
A lean expense sheet will ensure you can give your best shot for a longer time.
Track your expenses: Once your budget is set, track your expenses using any available expense management app to ensure that you are following your budget. This is critical.
For a plan to work, it must be implemented well and tracking tells you how well you are implementing your plan.
Though a word of caution here - stick to the basics and track the big money expenses.
Don’t get too bogged down with every small expense.
Yes, small expenses do add up but tracking them may also take up a lot of your time.
Buy adequate insurance: While at a job, insurance may not have been a pressing need.
Or maybe your employer had a great insurance cover so you were happy to just buy a basic top up policy.
But, when you are on your own, a good insurance cover can take care of bad life events. At the minimum, get a term life cover of Rs 1–2 crore.
If you are married, buying a family health insurance policy would also be recommended.
Continue your existing investments: If you are have an existing mutual fund or stock investment it is advisable to continue with them.
If your budget permits it, do not stop your SIP either.
Your investments are for long term well-being and you do not want to miss out on 2-3 years of capital appreciation.
Here are some simple steps to further optimize your investments:
1.While at a job your EPF was probably sufficient for tax saving investments. But now you will have to plan for your taxes yourself.
Thankfully, moving some of your existing investments into ELSS Tax saving MF plans will reduce your tax liability.
2.Move your MF investments from a broker / distributor to Direct Plans. You will save up to 1.5 percent in commission costs every year and increase your returns.
Finally, spend at least a few hours a year to revisit your financial plan periodically and adjust based on how your startup is performing.
A few simple steps and you can be on your way to secure your own financial position and the well-being of your loved ones.(The author is co-founder and CEO of Kuvera, a wealth management startup based in Bangalore.)