A 45-year-old entrepreneur from Bengaluru approached Gibin John seeking professional advice to evaluate whether his current investments would be sufficient to meet his key financial goals.
After reviewing his income, expenses, assets, and future goals, Gibin helped him understand the gaps and how he can achieve his goals. Based on Gibin’s assessment, a clear financial roadmap was outlined to align his investments, risk management, and long-term security with his life goals.
I am a 45-year-old resident of Bengaluru, running my own business. My wife also assists me in the business. We have one daughter who is 10 years old. Our average monthly income is Rs. 1,25,000, and our monthly living expenses are approximately Rs. 70,000.
My primary investments include a 10-cent land valued at Rs. 1 crore, which can be sold as smaller plots if required, Rs. 5,00,000 in a savings account, and Rs. 25 lakh in fixed deposits. In addition, I have investments worth approximately Rs. 30 lakh in equities and mutual funds.
My financial goals include funding my daughter’s higher education when she turns 17, which is expected to cost around Rs. 50 lakh and purchasing a car worth Rs. 30 lakh in the next four years.
I plan to retire at the age of 60, assuming that my daughter will take over the business. Post-retirement, I would like to have a monthly income of Rs. 50,000 to meet our living expenses for a period of 20 years. Currently, I do not have any insurance coverage. I request you to review whether my investments are sufficient to meet my financial goals.
Gibin John, our Certified Financial Planner, replies:
Your current cash flow is good, and you have investments across different asset classes. You would now like to assess whether these investments are adequate and appropriately allocated. Since business income is variable, we are conservatively assuming a minimum regular income of Rs. 1,25,000 per month. After accounting for your current living expenses of Rs. 70,000 per month, you have an estimated surplus of Rs. 55,000 available for investments.
To begin with, it is essential to set aside a contingency fund to meet expenses during unforeseen situations. Ideally, this fund should be equivalent to six months of your regular living expenses. You currently have Rs. 5 lakh in your savings account, which can be earmarked for this purpose. Since your income is irregular in nature, we strongly recommend maintaining this amount as a contingency fund. The funds may be parked in liquid mutual funds or a flexi fixed deposit to ensure both safety and easy liquidity.
Your first financial goal is your daughter’s higher education. You are estimating the required cost at Rs. 50 lakh in today’s value. Your daughter is currently 10 years old. At the time this goal is due, the cost of Rs. 50 lakh is projected to increase to approximately Rs. 86 lakh, assuming an education inflation rate of 8%.
To accumulate this amount, you may allocate Rs. 30 lakh from your existing equity investments. You may continue these investments for the next five years and subsequently shift the accumulated amount to fixed-income products such as debt mutual funds. Assuming an expected return of 12% from equity investments and 6% from fixed-income investments, the accumulated amount is estimated to be around Rs. 59.50 lakh.
The remaining balance can be accumulated by starting a monthly investment of Rs. 25,500 in a debt mutual fund, with an expected return of 6%.
Your next goal is to buy a car in the next 4 years and the expected cost is Rs. 30 lakh. For this goal you may allocate Rs. 25 lakh from fixed deposit and this will become 32 lakh in 4 years.
Another important financial goal is retirement. You are planning to retire at the age of 60, and your expected monthly living expense during the post-retirement period is Rs. 50,000 in today’s value. Assuming an inflation rate of 6%, this amount is projected to increase to approximately Rs. 1,20,000 at the time of retirement.
To maintain the same standard of living until the age of 80, you would need to build a retirement corpus of approximately Rs. 2.62 crore. You have already invested in a property currently valued at Rs. 1 crore. As the future appreciation and demand of the property is uncertain, we recommend initiating liquidation of this asset at least three years prior to retirement. Assuming a conservative growth rate of 5%, the value of the property is expected to increase to approximately Rs. 2 crore by the time of retirement. The remaining corpus requirement of Rs. 62 lakh can be accumulated by starting a Systematic Investment Plan of Rs. 13,000 per month in an equity-oriented mutual fund.
You should take a term insurance policy of Rs. 2 crore in your name. This will help ensure that your family’s financial goals are met even in your absence. In addition, you should opt for a family floater health insurance policy of Rs. 10 lakh to cover medical expenses and provide adequate healthcare protection for your family.
