I am 32 years old and working for a private firm. My wife is 30 years old, and my 8-year-old son is studying in 3rd standard. My monthly salary is Rs 88,000 and that of my wife is Rs 63,000. Recently, we bought a new flat. We have taken a home loan of Rs 38,00,000 at 8.60% interest rate and paying Rs 33,000 as EMI. The loan tenure is 20 years. Our monthly living expense is Rs 45,000 including son’s education fees. We are currently investing Rs 8,000 every month in mutual fund. My savings account balance is Rs 4 lakh. My property is currently valued at approximately Rs.90 lakhs.
We will require Rs 25 lakh for our son’s higher education and have a plan to buy a new car worth Rs.15 lakh after 4 years. We are planning to retire at the age of 55. After retirement, we will require around Rs 30,000 per month. Also, we need your advice on the early closing of our home loan. Please advise us on how to achieve these goals.
Gibin John, a Certified Financial Planner replies:
Your total income is Rs 1,51,000 and the total outflow for meeting living expenses and obligations is Rs 78,000. The net surplus available for investment is Rs 73,000. Considering your income, I think you are not investing your surplus amount properly. Firstly, you need to create a contingency fund for meeting unexpected expenses, which may affect the cash inflows. For this purpose, you can use your existing savings bank investments of Rs 4 lakh.
You expect your son’s education to cost you Rs 25 lakh. Considering education inflation of 8%, the higher education cost will become Rs 50 lakh when he is 17 years old. To create this corpus, you should invest Rs 26,500 every month in equity equity-oriented mutual fund (and assuming an average return of 12%).
Your next goal is to buy a new car after 4 years at a cost of Rs 15 lakh. If we consider 6% inflation, then the amount required will become Rs 19 lakh and to accumulate this amount you may invest Rs 35,000 per month in a Recurring Deposit or debt-oriented mutual fund. As this may affect the realisation of other goals, I suggest you fix a budget of Rs 15 lakh on the goal date value. To accumulate this amount, you need to set aside Rs 29,000 per month.
Your next and most important goal is retirement. You are planning to retire at the age of 55 and you are expecting Rs 30,000 as post-retirement expenses. After 23 years at the time of retirement, this monthly cost will become Rs 1,15,000. To get the inflation-adjusted corpus during the post-retirement period till the age of 80, you will have to create a corpus of Rs 3.07 crore. To create this corpus within 23 years, you will have to invest Rs.23,000 per month till retirement in equity oriented mutual fund. As you do not have sufficient funds to invest the full amount you may start with Rs 17,500 and four years later after you buy a car, you may add another Rs 10,000 to the investment towards your retirement goal.
Another concern is the early closure of the home loan. For this purpose, you have to pay an additional amount. At this point, after considering all goals, you do not have sufficient funds for additional payment. You can consider additional loan repayment after buying the car.
If you repay the loan with an additional amount of Rs 1.20 lakh, every year then the loan will end in 14 years or if you pay Rs 2 lakh per year it will end in 12 years. Salary increments and other additional income are not considered in this plan. You can utilise these amounts for creating a corpus or liability management.
