Stagger some goals for now
Bharuch-based Daves will have to wait for a rise
in income to be able to invest for all the crucial goals.
Hardik Dave stays in Bharuch, Gujarat, with his homemaker wife and
three-year-old child. He brings in a monthly salary of 86,500 and stays in
rented accommodation. After considering household expenses of 38,700, child’s
education expense of 3,500, contribution of 5,000 to parents, insurance premium
of 4,717, car loan EMI of 12,800, and investment of 18,000, he is left with a
surplus of 3,783. His portfolio comprises 3.2 lakh in cash, 9.64 lakh in debt,
and equity in the form of stocks worth 30,000 as well as mutual funds worth 7.4
lakh. His goals include saving for emergencies, child’s education and wedding,
retirement, buying a house, and taking a vacation. According to Financial
Planner Pankaaj Maalde, Dave will have to put off his child’s goals and
vacation till a rise in income.
Dave can begin by building the emergency corpus of 3.7 lakh by
allocating his cash and fixed deposit, and investing it in an ultra short-term
fund. Dave wants to buy a house worth 40 lakh in a year’s time, but Maalde
suggests he push the goal by three years, when the house value will be 52.5
lakh. To amass the down payment of 10.5 lakh, he will have to start an SIP of 18,250
in an equity savings fund for two years and review the investment after this
period. For the remaining 42 lakh, he will have to take a loan, and at 8.5%
interest rate, the EMI will come to 33,820. This can be sourced from his
surplus and saving on rent.
For his child’s education and wedding in 15 and 22 years, Dave will need
41 lakh and 88.5 lakh, respectively. To achieve these, he will have to start
SIPs of 8,300 and 7,500 in equity funds. However, due to lack of surplus, he
will have to wait for a rise in income before he can start investing. For his
retirement in 26 years, Dave will need 3.5 crore, and will have to start an SIP
of 5,000 in a diversified equity fund. He should also continue to invest 1,000
a year in the PPF till retirement.
For life insurance, Dave has a 1 crore term plan and a 10 lakh
traditional plan. Maalde suggests he surrender the traditional plan. He also
doesn’t need any more life cover. For health, he has a family floater plan of 5
lakh, but Maalde advises him to increase this to 10 lakh at a cost of 1,167. He
should also pick a 25 lakh critical illness plan and a 25 lakh accident
disability plan as soon as his income rises.
