Link investments with goals to achieve them
While
Manchegowdas have saved well, they have faltered when it comes to investment
and insurance.
The
intent to have a good financial plan is no guarantee that you will translate it
into one. You not only need clarity about your goals, but also be good at
saving and investing in the avenues that will help you reach your milestones.
Bengaluru-based Abhilash Manchegowda has the intent and is an aggressive saver,
but he needs assistance with his goals and investment. “I don't know how much
money I will need for each of my goals and need help with my investments for
that,“ says Manchegowda. Financial adviser Pankaaj Maalde will help him by
preparing a plan that can serve as a guide.
Existing financial status
Manchegowda,
30, is a software professional, who lives with his homemaker wife, Archana, 29,
and one-year-old son, Aryan, in Bengaluru. He stays in a house owned by his
parents' and gets a rent of `10,000 from the same property. Manchegowda earns
`60,600 a month, and along with the rental income, the total comes to `70,600.
Of this, nearly `27,500 goes in household expenses, while `1,250 is shelled out
as insurance premium, and `14,627 as home loan EMI for a loan taken against a
plot of land worth `34 lakh. He has also taken a personal loan, but it will be
repaid fully in a couple of months.Manchegowda is investing `17,000 in the PPF
and mutual funds through SIPs. This leaves him with a surplus of `10,223.
Manchegowda's
goals include building an emergency corpus, saving for the son's education and
wedding, building a retirement corpus, buying a car and a house, and taking a
vacation. It may not be possible for Manchegowda to invest for all the goals
simultaneously, so he will have to push back some till a sufficient rise in
income.
Insurance portfolio
Manchegowda
has not fared too well when it comes to insurance since he doesn't have any
life cover and a low health cover provid ed by his employer. So, Maalde
suggests that he cover his risks by buying an online term plan worth `1 crore
for 30 years. This will cost him `10,000 a year. As Archana is not working, she
doesn't need life cover.
As for
health insurance, Manchegowda only has `1 lakh cover by his employer. So Maalde
suggests he buy a `10 lakh cover, which will cost `16,000 a year. He should
also buy `25 lakh each worth of critical illness and accident disability
covers, which will cost `12,000 a year. Manchegowda has done well to buy a `4
lakh cover for his parents and is advised to continue with it. The premium for
additional covers can be sourced from the surplus amount.
Road map for the future
Manchegowda
needs an emergency corpus of `2.79 lakh, which is equal to his six months'
expenses. This can be sourced from his cash holding of `10,000, and fixed
deposit of `2.9 lakh. This sum should be invested in an ultra short-term debt
fund.
Now,
Manchegowda can start planning for his life's goals, the first of which is to
buy a car. Maalde has suggested that he scale down the cost from `10 lakh to `7
lakh, and push back the time horizon from one year to seven years considering
the constraints of his investible surplus after taking care of the primary
goals. To achieve this, Maalde has allocated Manchegowda's postal scheme corpus
of `1.73 lakh, which should be invested in an equity income fund. For the
shortfall, he should start an SIP of `6,000 in an equity income fund for two
years, and an arbitrage fund for the third year to accumulate the desired sum.
Next, he
wants to save `55 lakh for the education of his son in 17 years. For this,
Manchegowda should allocate `19,200 of his mutual fund corpus to the goal. For
the remaining amount, he should increase one of his existing SIPs of `7,000 in
an equity fund to `7,500. As for the son's wedding in 24 years, Manchegowda
needs `63 lakh. For this, he will have to start an SIP of `3,000 in an equity
fund and `1,000 in a gold fund to yield the desired corpus.
Finally,
for retirement, Manchegowda is estimated to require `7.53 crore in about 30
years. To achieve this, Maalde should allocate his PPF (`1.6 lakh) and EPF
(`50,000) corpuses, as well as the mutual fund corpus of `40,300 and plot of
land (`34 lakh). All these are likely to yield `5.28 crore in the given time.
For the remaining amount, he will have to continue with his ELSS investment of
`5,000, `1,000 in the PPF as well as his EPF contribution till retirement.
Manchegowda
should put off the goals of vacation and house purchase till a substantial rise
in income.
