Ex-servicemen should invest the extra amount depending on their age and risk profile
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7 tips for ex-servicemen on how to manage money better

If you have been able to manage your finances well you can invest the excess amount in various products depending on your age and risk profile

  • September 9, 2015  
  • |  
  • UPDATED   15:13 IST

One Rank One Pension (OROP) has brought cheers for thousands of ex-servicemen who were barely able to keep up with their monthly bills. But for many it means an extra flow of money for which you need to plan wisely. 

Experts say if you have been able to manage your finances well you can invest the excess amount in various products depending on your age and risk profile so that, unlike earlier, all your future needs are met.
The back-of-the-envelope calculations show retired military officers will get a pension hike ranging from Rs 8,000 to Rs 22,000 per month, while junior commissioned officers will get around Rs 2,200 to Rs 9,000. Here are a few tips what you should do with excess funds.

1) Budget
Once you know how much pension you get and how much you spend you would find yourself be in a better position to save money. Lovaii Navlakhi, a Bangalore-based financial planner, says, "Do a detailed budget for expenses . Before spending the entire amount try to figure out  what are your needs and  what are your wants." 

2) Future Needs

Invest the surplus money to meet your future needs. Suresh Sadagopan, a Mumbai-based financial planner, says," If they have been able to manage their finances till now and they are in retirement mode they can invest in debt or hybrid funds to take care of their future needs. " For people who are in their 40's and retirement is still away they can invest through systematic investment plans (SIPs) in mutual funds. This is because equities tend to give highest returns over the long period of time.

3) New Goals
You can identify new goals  such as travelling or renovating a house which were so far left in the backburner. Navlakhi, says, " Of the needs and wants, what is 3 years later, can be parked for growth in equities."

4) Inflation

Though dearness allowance is adjusted to take care of inflation. It might not be enough for you. It is important to understand the impact of inflation on your financial goals. Inflation is the rate at which prices rise. It reduces purchasing power substantially. Assuming 7% inflation, Rs 1,00,000 today will be worth Rs 13,000 after 30 years. Ignoring inflation means you will save much less than what you will need years down the line. If you are in late thirties or early forties invest in mutual funds for long term gains. If you are 60 plus stay away from equities.

5)  Save for your grandchildren

If ex-servicemen have some surplus and they have the intention to save for grand children, Sadagopan, says, "They can set aside something for their grandchildren through SIPs or child plans."

6) Create an emergency fund
You need to maintain a contingency fund for emergencies. The thumb rule says that you should set aside at least six months of your monthly expenses as an emergency fund. The next question is where to invest? You can park your emergency funds in those liquid assets that can be turned into cash quickly without loss of principal.  You can put some portion in savings accounts linked to fixed deposit or liquid funds. It is also advisable to put around 10-15 days monthly expenses as cash at home to meet emergencies, such as, floods, sudden hospitalisation, among other things.

7) Insurance
For those who have retired do not make the mistake of investing in insurance plans. If you do not have any dependents and you are above 60 years you should stay away from doing investments through insurance plans.  Navlakhi, says, "Insurance should be bought only need based. If a person does not have dependents he or she should not buy insurance."