Need to put surplus to work to meet goals
The high savings rate means
that Kajrolkars can reach their goals provided they align their investments
with each financial objective and secure their risks adequately.
A low net worth is not
always an accurate indicator of the future financial security of a family. Take
Mumbai-based Kajrolkars. At 31 and 28, Dipesh and Aarohi are only worth `8.16
lakh at present. Yet, their high savings rate, focused intent to achieve goals,
and willingness to have a high equity exposure for longterm goals will ensure
that their finances are on a firm footing later in life. While their portfolio
is meagre, consisting of investments primarily in the PPF, EPF, fixed deposits,
jewellery and Ulips, they will need to start streamlining it now to make sure
they don't stumble later. To help them do so, financial planner Pankaaj Maalde
will prepare a blueprint that will nudge them in the right direction.
Existing financial status
Dipesh Kajrolkar works with
a private company, while his wife Aarohi is a textile designer. Together they
bring in a monthly salary of `59,000 and have maintained a high savings rate of
nearly 51%. This means that their financial outgo comes to `27,267, besides an
investment of `1,500 a month.They couple spends nearly `12,000 on household
expenses and another 10,000 is paid as rent. Besides these, they pay `5,267 as
insurance premium and `1,500 is invested. This leaves them with a surplus of
`30,733, which will have to be put to work according to their goal
prioritisation.
The current list of goals
for Kajrolkars includes building an emergency corpus, buying a house, saving
for their future child's education and wedding, and their own retirement.
However, given their keenness for purchasing a house at the earliest, it is
unlikely that they will be able to save for all these goals simultaneously.They
should, therefore, put off the children's goals till they have enough surplus,
and given the long time frame for these two goals, they can afford to push back
the planning by a few years.
To begin with, Maalde will
assess Kajrolkars' insurance portfolio and suggest the necessary changes.
Insurance portfolio
The couple currently has
three Ulips and one term plan, for which they are paying an annual premium of
`63,000. Maalde suggests that they continue with Dipesh's term plan worth `40
lakh, as well as the pension plan. As for the two Ulips, they should consider
reviewing these after three years when they buy the house. Since Aarohi is also
an earning member, she should buy a term plan worth `50 lakh for 30 years,
which will cost them around `6,500 a year.
As for health insurance,
the couple currently has a family floater plan worth `3 lakh provided by
Dipesh's employer.However, they should buy an independent family floater policy
for `10 lakh, which will come for a premium of nearly `16,000 a year. The
couple should also consider buying accident disability covers worth `25 lakh
each, which will cost around `6,000 per annum. They should also purchase
critical illness plans, but since they don't have enough surplus, it can be put
off till a rise in their income. The additional insurance plans will cost them
an extra `2,400 a month, which can be easily sourced from the surplus.
Road map for the future
Now, the Kajrolkars can
start planning for their goals, the first of which is building an emergency
corpus equal to six months' expenses. This works out to `1.78 lakh and can be
sourced from their cash holding of `10,000 and fixed deposit of `1.6 lakh.
After securing their risk,
the couple can start focusing on one of their most important goals--purchasing
a house worth `40 lakh in three years. Considering inflation, the house will
cost them `53.25 lakh in three years. For this goal, they want to make a down
payment of `12.25 lakh. They can do so by allocating both their Ulips, which
will yield `4 lakh in three years.Maalde suggests that they pay the premium for
the plans for two years and surrender these after the home purchase is
finalised.They are also advised to retain 25% of the corpus in equity and shift
the remaining to debt. For the balance amount, they shall have to start
investing `20,000 via SIPs in an equity income fund for two years. After this,
they should consider a recurring deposit for one year to ensure safety of
capital. They should also buy a ready-to-shift house instead of one that is
under construction. Besides, they will have to take a loan of `41 lakh for 25
years, which will result in an EMI of `37,250 at 10% interest. The surplus,
along with `10,000 saved as rent, will fund the EMI.
Next, the couple wants to
prepare for retirement in 29 years, for which they will need `4.85 crore. From
their existing resources, Maalde has allocated the pension plan, as well as the
PPF and EPF corpuses, which will combinedly yield `1.41 crore in the specified
time. For the remaining amount, they will have to start an SIP of `9,000 in an
equity diversified fund, which can be taken care of with the investible surplus
and an increase in income after three years.
As for the other important
twin goals of the future child's education and wedding, the couple cannot start
investing for these since they don't have enough surplus at present. However,
these are long-term goals since they are planning a child after a year.Hence,
they can start investing for these after a few years when their monthly income
has risen sufficiently.
