Urgent need to cut debt
Gurgaon-based
Sharma must repay his expensive loans before focusing on financial goals.
Ashok
Sharma, 44, is a retired defence personnel and works in a private company. He
lives with his wife, 42, and two sons, aged 18 and 12. His monthly income of
`1.07 lakh is supplemented by his pension and rental income, bringing the total
to `1.3 lakh. Despite the good inflow, Sharma's cash flow is constrained,
mainly due to the EMIs of `57,841 for four loans worth `45.35 lakh: home, car,
personal and credit card.
Sharma's
goals include building a contingency corpus, saving for his sons' education and
weddings, retirement, buying a car, a house and taking a vacation. Despite
having his own house (a part of which is rented) and family's health insurance
taken care of by the government, Sharma doesn't have the surplus to invest for
any goal. Financial adviser Pankaaj Maalde suggests he start by getting rid of
three of his more expensive loans by taking a top-up loan of `18 lakh for 15
years. He can raise the home loan from `27 lakh to `45 lakh as it will result
in a single EMI of `45,650 at a much lower rate. It will also save `12,000,
which can be used to invest partially in a balanced mutual fund for the
education of his older son in five years.
For the
other goals, he will have to wait for a rise in income and may have to postpone
his retirement. To create an emergency corpus, he can allocate his cash and
fixed deposit and wait for a rise in income to meet the shortfall. For
retirement, he can assign his stocks, mutual funds and EPF corpus, but will
still need to invest `27,000 in a diversified equity fund.
Sharma
also needs to buy a term plan, critical illness and accident disability
insurance for himself (see Insurance portfolio).
