Geojit’s Investment Analyst, Gibin John, helps a 40-year-old professional and his wife seeking to secure their financial future. Gibin John analyses their current finances, savings, and investments to create a comprehensive plan, which includes accumulating a corpus for buying a flat and car, children’s higher education and daughter’s marriage.
I am Ramesh, 40 years old. My wife is 37. We are working for a private firm. My salary is Rs. 65,000 after all deductions, and my wife earns Rs. 60,000. We have a son, aged 10, and a daughter, aged 5. Our monthly living expenses are Rs. 45,000. We have not yet started any goal-based investments.
Currently, we are investing Rs. 10,000 each in two separate SIPs. The remaining amount is kept in a bank account. I have shares worth Rs. 4 lakh, Rs. 5 lakh in bank fixed deposit, Rs. 1.5 lakh in savings account and mutual funds worth Rs. 13 lakh. Please advise us on how to manage our investments to achieve life goals.
My financial goals are to purchase a flat worth Rs. 55 lakh within a year and buy a new car immediately with a maximum budget of Rs. 15 lakh. Accumulate Rs. 20 lakh for each child’s higher education and Rs. 20 lakh for my daughter’s wedding at 26.
Gibin John, a Certified Financial Planner, replies:
Your total family income is Rs. 1,25,000. After deducting the living expenses, your investable surplus is Rs. 80,000. From this, you are currently investing Rs. 20,000 through SIPs. The remaining Rs. 60,000 is lying idle in the bank account. This amount may end up being used for other trivial expenses.
To manage your investments and achieve your life goals, I would suggest the following:
First, you should create a contingency fund for meeting any unexpected expenses. For this purpose, create a contingency fund of Rs. 1.5 lakh in a savings account. This amount will be sufficient to cover unexpected expenses for three months. You may even invest this amount in liquid mutual funds to get some additional return.
Your immediate goal is to buy a flat worth Rs. 55 lakh within a year. For this, you can use the Rs. 22 lakh (FD – Rs.5 lakh, Mutual Fund – Rs. 13 Lakh, and Equity – Rs.4 lakh) from your existing investments. For the remaining amount you need to rely on a home loan. The downpayment is generally 20% to 25% of the property’s value. In your case this amount will be Rs. 14 Lakhs. You may allocate Rs. 20 lakh from your existing investments. Additionally, you can set aside Rs. 41,000 every month for one year to create Rs. 5 lakh for this purpose. For the balance Rs. 30 lakh you may take a home loan. The EMI of this loan will again be around Rs. 32,000 for fifteen years. The assumed interest rate is 9.5%.
Your next goal is to purchase a car. If this is not an important goal, you may postpone it and reduce the budget to Rs.10 lakh. To achieve this, you can allocate your existing monthly mutual fund SIP and an additional monthly investment of Rs.20,000 for the next two years. You may also utilise the balance amount of Rs. 2 lakh from existing investment towards this goal.
Children’s higher education is another goal. You will need the corpus for your son’s higher education in 7 years, while you have 12 years to accumulate the corpus for your daughter’s higher education. The cost for each of these education goals is budgeted at Rs. 20 lakh. Monthly investments can only be allocated after two years once the car goal is achieved. So, start investing Rs. 26,000 per month in equity-oriented mutual funds for your son’s education and Rs. 10,000 per month for your daughter’s education once the car goal is achieved.
You want to accumulate Rs. 20 lakh for your daughter’s marriage. But today’s Rs. 20 lakh will become Rs. 68 lakh if you take into account the inflation of 6%. To accumulate this corpus, you need to invest Rs. 10,000 in equity oriented mutual funds till your daughter reaches the age of 26.
You have not mentioned the retirement goal. However, since both are working in private jobs, you should prioritize building your retirement corpus. If you expect the living cost during retirement to be Rs. 25,000 in today’s value and plan to retire at age 55, you have 15 years left until retirement. Due to inflation at 6% per year, the expected living cost may rise to Rs. 60,000. To cover this inflation adjusted amount during the post-retirement period until age 80, you need to create a corpus of Rs. 1.60 crores by the time of retirement. To accumulate this amount in the next 15 years, you will need to invest Rs. 34,000 per month in equity-oriented mutual funds. Considering other goals, especially purchasing a flat, there may be a shortage in accumulating this amount. Therefore, you should prioritize the creation of your retirement corpus over other goals.
You should also consider taking a term insurance policy of at least Rs. 1 crore to protect your family, and a family floater health insurance policy of Rs. 10 lakh to cover unexpected medical expenses. As you meet your immediate goals, remember to review and adjust your financial plan
as needed based on changes in your income, expenses, and priorities. By following this approach, you can effectively manage your investments and work towards achieving your life goals.
