Reduce
debt, raise equity exposure to meet goals
Aligning intent with action
and linking investment with goals will ease Hariharans' financial journey.
Over the past five years of
providing financial guidance to our readers, we have observed a gradual shift
in age group of those seeking professional advice. More and more people are
beginning to think about financial planning in their midto late-20s. This means
that not only can they identify the broader track their finances should take,
but also focus on micros. More importantly, they can carry out course
correction, if needed, without incurring high risk. The Hariharans are also at
an early stage in life and keen to get their finances in order. “I want advice
that I can follow for the next 20-30 years,“ says Chandrasekharan. While
long-term advice is not possible because it alters in accordance with the
changing life situation, financial planner Pankaaj Maalde offers a blueprint
that can serve as a guideline.
Existing financial status
Chandrasekharan is 29 and
lives in Pune with his 23-year-old wife, Sowmya, and his parents, who are
financially independent.The two don't have any kids, but are planning one in
another couple of years. Chandrasekharan works in a private firm and brings in
a monthly salary of `1.1 lakh, while Sowmya is a homemaker. The outgo includes
household expenses of `23,583, insurance premium of `1,083, and `31,100 as EMIs
for three loans: home, car and credit card. He doesn't pay a rent because he
lives in his parents' house. He, has however, bought his own house worth `25
lakh, for which the outstanding loan is `12 lakh. This leaves him with a
surplus of `54,234, which needs to be invested for his goals.
The goals include building
an emergency corpus, buying a house, going on a vacation, saving for future
child's education and for their own retirement. Before preparing a plan, Maalde
will consider Hariharans' insurance portfolio and suggest changes.
Insurance portfolio
Though Chandrasekharan has
shown a high degree of awareness when it comes to securing health insurance, he
has been careless about life insurance and doesn't have any cover despite being
the only earning member and having taken three loans.Maalde suggests he
immediately buy an online term plan worth `1.25 crore for 30 years. This will
cost him `12,500 a year.Since Sowmya doesn't work, she doesn't need any life
cover. As for health insurance, Chandrasekharan has bought a `10 lakh plan and
doesn't need any more cover. He should, however, buy critical illness and
accident disability plans worth `50 lakh each, which will cost him `20,000 a
year.
Road map for the future
Before starting with goal
planning, Maalde suggests Hariharans repay their outstanding car and credit
card loans of `92,000 and `60,000, respectively. This can be done by using
their cash holding. It will also free up EMIs worth `16,100, which can be used
to meet some of the goals.
Now, the couple can start
with their goals, the first of which is building a contingency corpus of `1.27
lakh, equal to three months' expenses. This can be done by using their cash
holding and investing the amount in an ultra short-term fund.
Next, the couple wants to
go on a foreign vacation in two years, for which they need `5.83 lakh. This can
be achieved by starting an SIP of `23,000 for two years in an arbitrage fund,
which will yield the amount.
The couple's next priority
is to buy a house worth `66.5 lakh in three years.They want to make a down
payment of `26.5 lakh and can accumulate this amount by allocating their
existing house, which will be worth `33.25 lakh at that time. After deducting
the home loan of `10 lakh, they will face a shortfall of `3.25 lakh, which can
be amassed by starting an SIP of `13,000 in an equity income fund for two years
and shifting it to an arbitrage fund in the final year. For the remaining
amount of `40 lakh, they will have to take a home loan, which will result in an
EMI of `35,000 at the rate of 9.5%. This can be taken care of with the surplus
amount.
For their retirement, the
couple will need `7.5 crore to maintain their existing lifestyle in 30 years.
They can allocate their EPF corpus to this goal, which will yield `89.5 lakh.
For the shortfall, they will have to start an SIP of `15,000 in a diversified
equity fund for the specified time.
Finally, the couple wants
to save for their future child's higher education and have estimated a need for
`65 lakh and `1.4 crore for graduation and postgraduation, in 20 and 23 years,
respectively. To achieve these twin goals, they will have to start SIPs of
`7,000 and `9,000 in equity funds.
