Geojit’s Investment Analyst, Gibin John, helps 33-year-old professional and his wife seeking to secure their financial future. Gibin John analyses their current finances, savings and investments to create a comprehensive plan for the future.
I am Neeraj, a 33-year-old professional with a young family. My household includes my wife, our two-year-old daughter and my parents. My wife and I have a combined monthly income of Rs 55,000. Our monthly expenses total Rs 25,767, which includes an EMI of Rs 4350 (with eight months remaining), insurance premium of Rs 1,417 (Yearly Rs 17,000) and household expenses of Rs 20,000. My current financial commitments also include: a gold loan of Rs 90,000, investment of Rs 4,200 in chits (totaling
Rs 5 lakhs with payment of instalments for 5 more years), Rs 3000 in Sukanya Samridhi, Rs 4000 in mutual fund SIP started one year ago, Rs 50,000 in shares, Rs 2046 in child life plan ULIP MaxLife (5-year plan with a 15-year tenure after 5 years).
My goal is to build a house within 10 years. The budget is estimated at Rs 30 lakh. Please analyse my finance and help me take necessary steps to accumulate the corpus.
Gibin John, a Certified Financial Planner replies:
I appreciate your decision to seek guidance from a professional financial planner. There is a misconception in society that financial planning is only for high income individuals, but it’s crucial for everyone, regardless of income level.
Your monthly income is Rs 55,000 and your total expense is Rs 25,767 including household expenses,
insurance and loan repayment. This leaves you with Rs 29,233 for investments after expenses. Currently, you’re investing Rs 13,246 leaving Rs 15,987 potentially idle or spent on non-essentials. This investable surplus could be better allocated to important financial goals. While building a home is your stated goal, I strongly recommend you also prioritize two other critical life goals: accumulating a corpus for your child’s higher education and your retirement. Early planning and investing can make these goals more achievable with less investment. You are planning to build a house in the next 10 years and your budget estimate for this goal is Rs 30 lakh. Considering 6% inflation, your Rs 30 lakh house budget
will grow to Rs 54 lakhs in ten years. For accumulating this amount, you can set aside the chit investment will yield Rs 4.5 lakhs in five years, which, if deposited in a fixed deposit, could grow to Rs 6 lakhs by your goal date. The remaining Rs 48 lakhs can be accumulated through monthly investments of Rs 21,500 in equityoriented mutual funds, assuming a 12% growth rate.
You are currently paying an EMI of Rs 4,350 which will close in next eight months. After closing this loan, you need to focus on closing the gold loan of Rs 90,000 in the next 20 months. So, in 28 months you will be completely out of debt.
After addressing your current debts, let us focus on your child’s education. The expected cost towards this
goal is Rs 5 lakh in todays’ term. Taking into account an inflation of 8% you should aim for a corpus of Rs 16 lakhs by the time your child is 17. Once debt-free, invest Rs 4,000 per month in equity-oriented mutual funds to accumulate approximately Rs 12 lakhs. Assuming the current child life plan grows at an
average 10% rate, you will have a corpus of Rs 4 lakh when it matures. The combined amount from equity investments and the child life plan, should cover educational expenses.
For retirement, you will need about Rs 1.50 crores to maintain your current lifestyle until age 80. Assuming your retirement age is 56 years, you still have 23 years to create this retirement corpus. Your Chit and ULIP instalments will be over in next five years .You can make use of this amount to accumulate your retirement corpus. Start investing Rs 6,500 monthly after your current commitments end. If this investment gives you returns of 12% in 18 years, this amount will grow to Rs 46 lakh.
After ten years, once you have built your house, you can allocate Rs 21,500 set aside for this goal towards the creation of the retirement corpus. This way, you can create Rs 1.23 crores. With disciplined investing and potential career advancements, you can achieve your retirement goal. Remember, financial planning is an ongoing process. Regularly review and adjust your strategy as your circumstances change to ensure a secure financial future for you and your family.
