Phased plan will help meet long-term goals
Rohit Mishra has a comfortably long time frame to plan his savings
for all the crucial goals.
Rohit Mishra may not have a big salary or net worth, but he has
youth and financial prudence on his side. This may be all the impetus he
requires to put him on track for a secure financial future. After all, not many
people realise they are in a debt trap and make a conscious effort to recover
from it so that they can start saving and planning for their goals. At 25,
Mishra has done just that. Though his portfolio is small and comprises only
debt, Mishra has a good savings ratio, which will be leveraged by financial
planner Pankaaj Maalde to formulate a plan for him.
Existing financial
status
Mishra is single and works as an IT consultant in Hyderabad. While
he stays in a rented accommodation, his mother and younger brother stay in
their own home in Delhi.Mishra gets a monthly salary of `37,000, of which
`10,000 is spent in household expenses and `5,169 goes as insurance premium.
Besides this, he invests `10,000, leaving him with a surplus of
`11,831.Mishra's current portfolio includes EPF corpus of `73,000, recurring
deposit of `40,000 as well as a fixed deposit of `38,000.
As for his goals, Mishra is planning his own wedding in two years.
Besides this, he wants to build an emergency corpus, buy a house and a car,
save for his retirement and future children's goals. Maalde suggests that he
put off the children's goals for now and start planning for the the remaining
ones in a staggered manner. To begin with, however, Maalde will analyse his
insurance portfolio and suggest changes.
Insurance portfolio
Mishra has two traditional life insurance plans bought in 2011 and
2013, which provide him with a cover of `12 lakh. Since these are unlikely to
offer returns that beat inflation, Maalde suggests that Mishra surrender both
the plans and, instead, buy an online term plan worth `50 lakh for 35 years.
This will cost him `5,000 a year.Mishra has completely ignored his health
insurance needs and has no cover as of now. Maalde suggests he buy an
individual plan worth `5 lakh with an annual premium of `6,000. He should also
buy critical illness and accident disability plans worth `25 lakh each, and
both these will cost him `9,000 per annum. He will not spend any additional
amount on these plans and will, in fact, save `3,502 on premium, which can be
used for the goals.
Road map for the future
To plan for his goals, Mishra can begin with an emergency corpus
that is equal to six months of expenses and amounts to `72,000. For this, he
can allocate his fixed and recurring deposits.
Next, he is planning to get married in two years' time and will
need `5 lakh for this goal. To achieve it, Maalde suggests he start an SIP of
`20,000 in an arbitrage fund, which will yield the desired corpus.
Mishra also wants to buy a house as a priority and has allocated
`35 lakh for this goal. Taking into account 8% inflation, the house will cost
him `56.35 lakh in five years. Maalde suggests he make a down payment of `20%,
which will amount to `11.35 lakh. However, he can start saving for this goal
only after two years when he has stopped investing for his wedding goal.He will
have to start an SIP of `27,000 in an MIP fund for two years and an arbitrage
fund for the third year to yield the desired amount. This is assuming a rise in
income by `7,000 in two years. After this, he will have to take a home loan of
`45 lakh, which will result in an EMI of `41,000 considering an interest rate
of `9.5%. He will be able to pay this by including the current surplus of
`25,000, the saving on rent and an increase in salary in five years.
Mishra should also start planning for his retirement, for which he
will need `4.15 crore in 34 years when he retires. To build it, he can start an
SIP of `5,000 in a diversified equity fund and also allocate his EPF corpus to
this goal. The latter will yield `91 lakh and the balance can be built through
equity investment.
Though Mishra also wants to buy a car worth `7 lakh in three
years, he will be unable to fund this goal given his limited surplus and
prioritising of other goals like buying a house and saving for retirement.Hence,
he should put it off for now. He will also have to defer his child-related
goals of education and wedding for a few years.Since these goals are several
years away, he can start investing for them after a rise in salary and
provision of sufficient surplus.
