High monthly saving to help meet goals
The Kumar
family is unlikely to suffer any major hurdles in their financial journey if
they channelise their surplus in the right investment avenues and cover their
risks adequately.
The
rising awareness about financial planning has seen many of our readers start
with it at an early age. More important ly, they do not hesitate to seek
professional advice if they believe they are ill-equipped to handle their
finances. One such reader is Noida-based Mohit Kumar, who is unsure if he will
be able to meet all his goals. Though he is just 30 years old, he has a high
net worth of nearly `67 lakh and has already purchased a house. However, his
portfolio is heavily skewed towards real estate and he has a high cash holding.
The biggest mistake, however, is not investing his savings and letting the
money idle in his bank account. In later life, such decisions can cost heavily
in terms of lost opportunity, but Kumar can rectify it by starting investing
immediately. Financial adviser Pankaaj Maalde will help Mohit prepare a plan
that will tell him how much to invest in which avenue so that he can maximise
his returns.
Existing financial status
Mohit
Kumar is an IT professional and is married to 28-year-old Ishita, who is a
banker. The couple does not have any children as of now but “we are planning
one in a couple of years“, says Mohit. “This is also the reason I want to know
how to manage my finances and meet all my goals, especially after my wife quits
working when we have the baby,“ he adds.
While
Mohit brings in a monthly salary of `75,000, Ishita gets `25,000. Of the
combined income of `1 lakh, `38,333 goes in monthly household expenses. Another
`30,061 is allocated to the EMI for a `29 lakh home loan that Kumar has taken.
The house they have bought is worth `65 lakh and Mohit is expecting another `20
lakh as a share in parental property. This leaves the couple with a surplus of
`31,606, which needs to be invested judiciously for the goals.
The goals
include building an emergency corpus, buying a car, planning for their future
child's education and their own retirement. As for their portfolio, they have
76% in real estate, while the 20% debt comprises the EPF corpus of `3 lakh and
a fixed deposit of `25,000. The small equity component includes stocks worth
`15,000 and mutual funds worth `78,000.
Before
Maalde prepares a blueprint for them, he will assess their insurance needs and
analyse their portfolio.
Insurance portfolio
The
couple has not taken any measure when it comes to securing their risk. They are
covered for life and health by employers, but need to buy independent
insurance, especially if Ishita quits working after the baby and Mohit changes
jobs. Hence, Maalde suggests that Mohit buy an online term plan for `1 crore
and Ishita for `30 lakh, which will cost them `16,000 a year.
As for
health insurance, the couple is advised to pick up a family floater plan worth
`10 lakh, which will cost `15,000 annually and `3 lakh policy for Mohit's
mother at an annual premium of `12,500. Maalde also suggests Mohit pick up
accidental disability and critical illness plans worth `25 lakh each at a cost
of `10,000 a year. The total monthly premium will come to `4,458 and can be
sourced from the surplus.
Road map for the future
After
insurance planning, the couple can move towards their goals. To start with,
they need an emergency corpus equal to three months' expenses, which amounts to
`2.37 lakh. For this, they can fall back on their existing resources, including
`2 lakh cash in their savings bank account and the fixed deposit of `25,000.
This amount should suffice for now and should be parked in an ultra short term
fund.
Before
planning for other goals, Maalde suggests that they reschedule their home loan
in order to increase the surplus. They can extend the tenure from the existing
16 years to 25 years, which will reduce their EMI from `30,061 to `26,000,
creating an additional amount of `4,061 and raising the surplus to `35,667.
The
couple's first goal is buying a car worth `6 lakh in one year. For this, Maalde
suggests that they take a loan for seven years, which will result in an EMI of
`10,000 at a rate of `10.25%. This amount can be sourced from the increased
surplus.
Next,
Kumars want to save for their daughter's education, for which they have
estimated a need of `43 lakh when she is 18 years old. To achieve this goal,
they will have to start an SIP of `4,500 in an equity diversified fund. For her
higher education when she is 21 years old, they will need nearly `81 lakh. To
meet this goal, they need to invest `5,500 through an SIP, again in an equity
diversified fund. These investments will help cobble together the required
amount in the specified time frame.
Finally,
for their goal of retirement, Maalde has estimated that they will need `10.5
crore. Mohit wanted to retire at 40 and start his own business, but this is not
feasible given his financial status. Hence, he should consider continuing to
work till 60 and assign his existing resources to the goal. These include
stocks and mutual fund investments, EPF corpus, and the property worth `20
lakh. These will help muster `5.58 crore in 30 years. For the remaining amount,
he should start an SIP of `11,000 in an equity diversified fund.
