A young couple seeks advice on financial discipline and goal planning, as despite having a monthly surplus, they struggle with saving money. Geojit’s Senior Investment Analyst, Gibin John, recommends establishing an emergency fund and investing systematically to create a robust corpus for fulfilling their dreams like buying a flat, a car, and retirement planning.
I am working as a software engineer, and my husband is also an engineer. We are working for a private company. I am 27 years old and my husband is 29. Our monthly income is Rs. 80,000 and Rs. 95,000 respectively. We are staying in a rented flat. Our monthly living expense is Rs. 45,000, and rent is Rs. 15,000. Our car loan EMI is Rs. 9,000 and our educational loan EMI Rs. 25,000. Travel expenses are Rs. 12,000 per month, and our insurance premium of Rs. 5,500 is paid semiannually. These are our identifiable expenses, but we do not have much savings. We have a bank fixed deposit of Rs. 6.50 lakh, and a money-back policy with a maturity amount of around Rs. 3 lakh. The first money-back payment of Rs. 1,50,000 will be received next month, the same amount in 2028, and the final payment is in 2031 along with the maturity amount. The outstanding car loan amount is Rs. 2 lakh and this will end in two years. The educational loan will end in August 2025.
The main intention behind writing this letter is to bring financial discipline into our lives. We are planning to buy a new flat in three years, and the expected cost is Rs. 50 lakh. For this purpose, our parents will contribute Rs. 10 lakh. We also need to buy another car after repaying the car loan, and the expected cost is Rs. 13 lakh. We are planning to retire at the age of 55. Also, we need to accumulate an amount to achieve goals other than those mentioned here. Please give us your valuable advice and suggest suitable investments.
Gibin John, who is a Certified Financial Planner replies:
Both of you are at the beginning of your careers, and it’s great to see you taking proactive steps towards financial planning. Let’s dissect your finances. Your family’s total monthly income is Rs.1,75,000, with total expenses amounting to Rs. 1,06,000 – approximately 60% of your income. This leaves you with a surplus of Rs. 69,000, which can be invested to build a corpus for your future needs. However, based on your letter, it seems you are struggling with financial discipline, leading to ineffective utilization of this surplus.
Before starting to plan for your life goals, you need to set up a contingency fund for meeting any emergency situations in life. For this purpose, you may earmark your existing fixed deposit of Rs. 6.5 lakh. This amount will be sufficient to meet expenses and obligations for six months.
Your immediate goal is to buy a new flat in three years. The expected cost for this goal is Rs. 50 lakh. Your parents will help you by contributing Rs. 10 lakh towards fulfilling your dream, and you need to create the balance amount of Rs. 40 lakh within three years. It is difficult to accumulate this amount in such a short period with your existing surplus. So, you will need to take a home loan to fill the shortages. This is a short-term goal, and hence you should not take much risk with your investments. Therefore, you should invest the amount in low-risk investments like high-rated debt mutual funds or recurring deposits. Assuming these investments generate a 6% return and you will need to invest Rs. 38,000 per month, then you can create an amount of Rs. 15 lakh in three years. Then the total down payment amount in your hand will be Rs. 25 lakh. For the balance Rs. 25 lakh, you may take a home loan for fifteen years, and the monthly EMI for this loan will be around Rs. 25,000.
Your next goal is to buy a new car in three years, with an estimated cost of Rs. 13 lakh. Given the short-term nature of this goal, consider investing Rs. 28,000 monthly in a high-rated debt mutual fund or recurring deposit to accumulate around Rs. 11 lakh. The remaining amount can be supplemented by selling your existing car.
Another important goal is your retirement plan. For maintaining your existing living standard post retirement, you have to accumulate a decent corpus. The current living expense of Rs. 45,000 would become Rs. 2,04,722 at the age of 55, if the expense is inflated at the rate of 6%. To find this inflation-adjusted amount till the age of 80, you have to create a corpus of Rs. 5,47,61,956. To accumulate this amount within the next 26 years, you need to invest Rs. 28,600 per month in equity-oriented mutual funds, with an expected average rate of return of 12%. After closing your education loan, you can allocate the funds for this purpose.
It is recommended that you take health insurance coverage of a minimum of Rs. 5 lakh. If your company provides this coverage, then that will be sufficient. Otherwise, you should purchase a health insurance policy. You are both working and there is no need to take life insurance immediately, but it is advisable to take a term insurance of Rs. 50 lakh each. If you take term insurance now, the premium will be lower, considering your age.
The above proposals are based on your existing surplus amount. Once the loan repayments or home and car purchases are over, you will have sufficient surplus to invest towards any other goals in the future or invest towards creating wealth. I recommend you to review your investments and financial plan every six months to check the progress. Reviewing and adjusting the financial budgeting steps periodically is imperative to check if you are heading towards your goals effectively with the existing financial planning framework.
