A young dual-income family of software engineers is navigating the complexities of financial planning. With two children and a diverse mix of assets and investments, they seek clarity on whether their current strategy aligns with long-term goals, which include funding education and planning a wedding to buying a car, retiring early, and closing a home loan. Geojit’s Senior Investment Analyst, Gibin John, offers a detailed roadmap to help them align resources with aspirations and achieve their goals with confidence.
We are both software engineers and have a daughter and a son. I am 40 years old, and my wife is 39. Our son is 9 years old, and our daughter is 6. Our monthly net income is Rs. 2 lakh and Rs. 1.5 lakh, respectively. We also receive Rs. 15,000 as rental income. Our living expenses are around Rs. 1 lakh, and our joint home loan EMI is Rs. 47,000 per month. The current loan outstanding amount is Rs. 30 lakh, and the loan is scheduled to close in May 2032.
We have a bank fixed deposit of Rs. 20 lakh at 7.5% interest, maturing on 14th December 2025. Our savings bank account holds Rs. 5 lakh. We have an insurance policy started in 2017 with a sum assured of Rs. 8 lakh and an annual premium of Rs. 48,000 for 20 years. We are investing Rs. 43,000 per month through SIPs in equity mutual funds, and the current value is Rs. 18 lakh. We own a residential property worth Rs. 1.5 crore, a flat worth Rs. 50 lakh, and land worth Rs. 30 lakh. We also have 60 sovereigns of gold ornaments, which we plan to use for our daughter’s marriage.
Now, we are unsure whether our investments are aligned with our goals.
Our main goal is our children’s education. We want to accumulate Rs. 25 lakh each for their higher education. For our daughter’s marriage, the expected cost is Rs. 50 lakh. We are planning to buy a new car in five years, with an expected cost of Rs. 25 lakh. We plan to retire when I turn 55, and we will require a monthly passive income of Rs. 75,000 at that time to meet our expenses. We also want to close our home loan early. Please guide us on how to achieve these goals.
Gibin John, who is a Certified Financial Planner replies:
We receive many queries about investing, and often, people make decisions based on popular trends or fragmented advice without assessing whether those choices truly align with their personal financial goals. The foundation of any successful investment strategy lies in understanding your objectives, risk tolerance, and time horizon. Before committing to any form of investment, it is essential to evaluate whether it supports your long-term aspirations. A comprehensive financial plan acts as a roadmap, helping you select investments that are tailored to your goals and risk profile.
You have already invested in various financial products, and you can utilize these along with new investments. Your current total income is Rs. 3,65,000. After deducting total expenses of Rs. 1,47,000, you have an investable surplus of Rs. 2,18,000. Out of this surplus, if your insurance premium is converted into a monthly amount (Rs. 4,000) and your mutual fund SIP is Rs. 43,000, then a total of Rs. 47,000 is currently going towards investments.
First, you should set aside a certain amount to meet your contingency needs. Ideally, you should maintain an emergency fund equal to three to six months of expenses. In your case, this amounts to Rs. 9 lakh. You can use your savings account balance of Rs. 5 lakh to cover three months of expenses. If this amount is used fully or partially, don’t forget to replenish it.
Your main goal is to accumulate a corpus for your children’s higher education. You plan to spend Rs. 25 lakh each. Your son’s higher education will begin in 8 years. If we assume an 8% inflation rate, the cost will rise to Rs. 46 lakh. To accumulate this amount, you need to invest Rs. 29,500 per month. Similarly, your daughter’s higher education will start in 11 years, and the cost will rise to Rs. 58 lakh. You can build this corpus by investing Rs. 22,000 per month. Since both goals are long-term, you can choose equity-oriented mutual funds, with an expected average return of 12%.
Another important goal is your daughter’s marriage at around 27 years. The current estimated cost is Rs. 50 lakh, which will grow to Rs. 1.7 crore assuming 6% inflation. You plan to use your existing gold ornaments for this purpose. If the value of gold increases at 7% annually, then 60 sovereigns of gold (currently worth around Rs. 41 lakh) will be sufficient to meet this goal.
Post-retirement planning is extremely important as there will be no active income, and you should invest wisely to ensure a steady income stream. You expect Rs. 75,000 per month during retirement. This will inflate to Rs. 1,80,000 by the time you retire. You currently have a rental income of Rs. 20,000, but we have not considered this income for post-retirement planning. You will need to create a corpus of Rs. 4.81 crore to generate inflation-adjusted income until age of 80. To achieve this, you should invest Rs. 1,00,000 per month in equity-oriented mutual funds.
Buying a new car in five years is a short-term goal. The estimated cost today is Rs. 25 lakh, which may rise to Rs. 33 lakh. Assuming an 8% annual return, you need to invest approximately Rs. 45,500 per month in a conservative hybrid fund to achieve this goal.
Regarding early repayment of your home loan, you haven’t mentioned the interest rate. After your fixed deposit matures, you can use the full maturity amount of Rs. 21 lakh to repay part of the loan. This will allow you to close the loan within two years. After that, you can redirect the EMI amount into equity-oriented investments.
Your existing insurance policies do not provide sufficient coverage. Both of you should consider taking a term insurance policy of at least Rs. 1 crore each.
We have not yet allocated your existing mutual fund holdings (Rs. 18 lakh), land worth Rs. 30 lakh, and the maturity value of your insurance policy. These can be used for future goals. Also, we have not factored in any future salary increments. You should invest any increase in income to accelerate wealth creation and maintain financial discipline.
