A young couple is laying the foundation for long-term financial security through financial planning. They have a home loan, which they want to close ahead of the schedule, monthly SIPs, and aspirations that include funding their son’s education, retiring early, they seek expert guidance to align their resources with future goals. Geojit’s Certified Financial Planner, Gibin John, offers a structured roadmap to help them achieve financial clarity and confidence.
I am 32 years old, and my wife is 30. We have a 2-year-old son. Both of us work for private firms. My monthly income is Rs. 1,10,000, and my wife earns Rs. 60,000. Our living expenses are Rs. 45,000. We purchased a flat worth Rs. 70 lakh, for which I have an outstanding home loan of Rs. 38 lakh at 8.5% interest rate. The EMI is Rs. 33,000 for 20 years.
Currently, I invest Rs. 20,000 per month through SIP and have Rs. 3.5 lakh in my savings account. I want to know how I can close this loan as early as possible, as I do not wish to continue it for the full tenure. I also want to plan for my son’s higher education when he turns 17, with an expected cost of Rs. 25 lakh. Additionally, I plan to retire at 55 and will need Rs. 35,000 per month for living expenses post-retirement. We are covered under a company-provided health insurance policy.
Gibin John, who is a Certified Financial Planner replies:
This is the right time to create a financial plan and start structured investments aligned to your goals. In your letter, you have not mentioned any existing investment details from your SIP and savings account, so we assume that the amount accumulated in previous years was used for the flat purchase. Your current income is Rs. 1,10,000 per month, and your spouse’s income is Rs. 60,000 per month. The cash outflows from this income are Rs. 45,000 for living expenses and Rs. 33,000 for the home loan EMI. The total monthly outflow is Rs. 78,000, leaving a monthly surplus of Rs. 92,000.
First, you should set aside an emergency fund. This fund can be used in case of any unforeseen contingencies. Ideally, a minimum of three months’ expenses should be maintained. In your case, setting aside Rs. 3,50,000 from your savings account balance would be appropriate for this purpose.
One of your goals is your son’s higher education. You are estimating a cost of Rs. 25 lakh in today’s terms. Assuming an 8% annual inflation rate in education, the future cost after 15 years would be approximately Rs. 80 lakh. To accumulate this amount in 15 years, you need to invest Rs. 17,000 per month in equity-oriented investments, assuming a return of 12% per annum.
Regarding your retirement, you expect a living cost of Rs. 35,000 in today’s terms. You plan to retire at the age of 55, which is 23 years from now. Considering a 6% annual inflation rate, the expected monthly living cost after retirement will grow to Rs. 1,33,691. To generate this inflation-adjusted income from age 55 to 80, you will need to create a corpus of Rs. 3.58 crore. To accumulate this amount over the next 23 years, you should invest Rs. 27,000 per month in equity-oriented mutual funds.
Another important financial goal is the early closure of your home loan. Your current loan outstanding is Rs. 38 lakh, and the remaining tenure is 20 years. You mentioned an interest rate of 8.5%, which may have changed recently. However, for this calculation, we assume the same rate.
A home loan is a significant financial burden and can limit other investment opportunities. Therefore, it is advisable to close it as early as possible. Banks may not allow additional monthly payments towards the loan, so you can accumulate an amount monthly and make lump-sum payments annually.
If you set aside Rs. 22,000 every month for this purpose, you can fully repay the loan by April 2033. Split this amount into two parts—invest Rs. 16,666 per month to make an annual lump-sum repayment of Rs. 2 lakh (for eg. every March) and invest Rs. 5,334 per month through a SIP for 92 months. Assuming a 12% annual return, this SIP will grow to Rs. 7.85 lakh, which can be used for the final loan repayment in April 2033.
You should consider taking a term insurance policy of Rs. 2 crore to financially protect your family against unexpected events.
