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Ritesh and Rohini are a newly married couple. They are from Ludhiana but reside in New Delhi as Ritesh works in a private hospital in Delhi as a cardiologist

Written by Express News Service | Published:May 13, 2013 12:30 am

Name: Ritesh bhardwaj

Resides in new delhi

Profession: Doctor

Annual income

(Rs 15 lakh)

Status & goals

Ritesh and Rohini are a newly married couple. They are from Ludhiana but reside in New Delhi as Ritesh works in a private hospital in Delhi as a cardiologist. Rohini is a house wife and is expecting a baby. At present,Ritesh lives in a rental accommodation but wants to buy a house outside Delhi and start practicing there. He also wants to study further and would like to make provisions for the same. Ritesh’s parents are not financially dependent on him. Ritesh expects 10 per cent increase in his annual income post tax.

Needed

A comprehensive financial plan securing purchase of flat,retirement and higher education

Net monthly surplus

Rs 80,000

Current Investments

Savings Account Rs 2 lakh

Bank Fixed deposits Rs 1 lakh

Findings

Emergency fund Ritesh can use the amount in his bank saving and fixed deposit during emergencies.

Life insurance He doesn’t have any life insurance policy in his portfolio.

Health Insurance He has health insurance coverage of Rs 3 lakh family floater.

Investments Ritesh is yet to invest in debt or equity. Whatever he has saved is in bank deposits.

Recommendations

Emergency fund He needs to keep Rs 1.35 lakh in his saving account and maintain it as an emergency fund.

Express tip Emergency fund carries utmost importance and helps in managing contingencies like health problems or job loss.

Life Insurance Ritesh does not have any life insurance coverage. His responsibilities are going to increase as a father,so he should buy adequate coverage. To start with,he can get Rs 1 crore of sum assured cover,and keep reviewing it year on year. It is advisable to buy this through online term plans which would cost around Rs 17,000 p.a.

Express tip Life insurance is meant to secure your financial responsibilities towards your dependents in case of your untimely death.

Health Insurance Ritesh should increase the health insurance coverage of himself and his wife to at least Rs 5 lakh. The health treatment in metro cities is much more than in small town.

Express tip Health insurance coverage should always be bought keeping in mind the cost of treatment of the city you live in.

Accident Insurance Ritesh should buy accidental insurance coverage of at least Rs 1 crore with a temporary total disablement benefit of maximum available coverage. The premium for this would be around Rs 13,000 p.a.

Express tip Disability coverage is very important in if one is the sole bread earner in the family.

Ritesh’s higher education (2016)

He should allocate Rs 1.65 lakh from his bank saving and fixed deposit towards this goal,and start saving Rs 42,000 p.m. in debt oriented balanced mutual funds. If required,he may think of taking education loan.

Rate of return assumed 10% post tax.

Express tip Education loan is among the better loans.On one side it helps in building your career as well as offers tax benefit on interest payment.

Child’s Education (2030)

He can delay the saving towards this and use the surplus left for the self-higher education goal. After the birth of his child he should start investing Rs 16,000 p.m. in debt equity ratio of 80:20 in mutual funds.

Rate of return assumed is 12% post tax in equity and 8% post tax in debt.

Express tip It is wise to foresee the long-term goals and start investing for the same whenever your surplus position allows. This will reduce the financial burden later in life.

Child’s Marriage (2039)

He should start saving Rs 3,000 p.m. towards this goal in equity debt ratio of 80:20. For equity allocation equity mutual funds can be used and for debt allocation PPF would be the suitable option.

Rate of return assumed is 12% post tax in equity and 8% post tax in debt.

Express tip The early you start saving for very long-term goal,the less you have to shell out of your pocket due to power of compounding.

House Down Payment (2021)

Start saving Rs 9,500 p.m. in asset allocation of 80:20 in equity and debt. Use equity and debt mutual funds for this allocation.

Rate of return assumed is 12% post tax in equity and 8% post tax in debt.

Express tip One should save for a higher down payment in order to reduce the loan EMI burden.

Retirement Planning (2038):

Most of his surplus has been adjusted in other goals but looking at the rise in income at 10 per cent per annum,if Ritesh starts saving Rs 12,500 per month and keeps on increasing his savings by 10 per cent every year,he can comfortably reach his retirement target. The savings should be in equity debt ratio of 80:20.

Rate of return assumed is 12% post tax in equity and 8% post tax in debt/EPF.

Express tip Though professionals don’t treat retirement planning as an important goal as they assume that they will keep on working forever,one has to accept the fact that with age a persons earning capacity often comes down.

Conclusion

An early start to financial planning pays in the long-term. And when you start with clarity of thought,the journey becomes easy. Once the plan is designed you just have to follow it religiously and then everything will fall in place.

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