Express Clinic

IT industry Support Function

Annual income R3.72 lakh

Status amp; goals

Amey has been working for 6 years now but he has been unable to save any of his income due to responsibilities which needed his attention. He lives with father 62 and mother 56. Now he is looking to create a plan for himself that will lead him to financial independence while meeting his goals. Ameys father is working for a private firm and mother is a home maker. Amey wants his father to retire in a couple of years. His main goal is to buy a house and a car. Other Expenses: Total domestic expenses are in the range of Rs 20,000 pm,half of which are taken care of by Ameys father. Existing Investments: Property Current Value: Rs 36 lakh,savings accounts: Rs 50,000.

Needed

A comprehensive financial plan for retirement,buying a house and a car.

Monthly Income Rs31,000

Monthly expenses Rs10,000

Net monthly surplus Rs21,000

Goals in order of priority

Property Purchase 2018 inflation 10

Current Value Rs48 lakh

Future value Rs70.5 lakh

Retirement Planning 2044

Pre-retirement inflation 8,Life Expectancy 85 years,Post Retirement Inflation 7,Growth of Corpus at the rate of 8.

Current expenses pa Rs2.40 lakh

Future value Rs26 lakh

Corpus required Rs5.84 crore

Current Investments

Life Insurance coverage: NIL

Health insurance: Employer provides health cover of Rs 4 lakh for Amey and his parents.

FINDINGS

Emergency Fund: There is some liquidity available in terms of balance in the savings account. It needs to be enhanced in view of the nature of industry where Amey is working.

Health insurance: Company has provided a decent cover for the family.

Insurance: There were some ULIPs taken in the past which have been surrendered to fund responsibilities. Currently,there is no life insurance cover.

Investments: Earlier investments in mutual funds have been redeemed to fund requirements. Currently,there are no investments.

Retirement: There is no planning done for retirement. There is default saving happening in PF account. Since it is a new job,there has been no substantial accumulation yet.

Liabilities: There are no liabilities.

Recommendations

Emergency Fund: Amey should start investing in Fixed Deposits of Rs 20,000 each month in his bank. He has to maintain this for at least three months. This will create an emergency fund of Rs 1.10 lakh when added up with the current balance available in the savings account. This will be equivalent to about six months of expenses. He can add his fathers name as a joint holder for ease of operations.

Express tip: Always keep 3-6 months of expenses in ready to use form. Also look at ease of operations in case of emergency.

Health Insurance: Company provided cover is sufficient.

Express Tip: Change or loss of job might create gaps in insurance coverage. Ensure getting a cover before such changes.

Life Insurance: Ameys parents are dependent on him. In his case he should take a term insurance for Rs 50 lakh. This will provide funds equivalent to current living expenses to his parents for at least 25 years,in case of an eventuality. He can go for an online term plan. The cost should be approximately Rs 8,000 per year. This way,in his absence,he can ensure that his parents will not a have tough time managing their living.

He should also look at buying a personal accident cover for himself. This will cover him for disabilities as well.

Express Tip: In case of dependent parents,it is even more essential to have life insurance cover.

Property Purchase: Ameys current income is insufficient for him to be eligible for a loan beyond Rs 15lakh. Even in five years,it looks difficult to achieve this considering inflation vis-a-vis his expected growth of income. He should look at a tenure of about 10 years or so to go for property purchase. He can start building a corpus for the down payment for a property. The exact time will depend on the increase in his income.

Express Tip: Do not rush in to buy a property. Save for the down payment first,evaluate your loan servicing ability and try to keep your loan below 40 per cent of your take-home salary.

Retirement: Employment Provident Fund is often a hidden ally in retirement planning. Out of the corpus of Rs 5.84 crore required by Amey,about Rs 1crore will come from his EPF. This is assuming he does not withdraw it in between. For the rest,he needs to invest Rs 4,500 each month in equity and Rs 1 lakh per annum in PPF. This can be done in the form of systematic investment plan or SIP in an equity mutual fund.

Other Aspects: In most cases,during ones early career years,the resources are low and the demands are high. If you go by allocation of a fixed amount for each goal,it will seem as if goals cannot be met,or there will be a shortfall. In such cases,it is ideal to invest all surplus available. This will create a pool of funds which can be dipped into for the goal requirements. Same is the case with Amey. He needs to start investing his monthly surplus regularly. So this is how it will go,Rs 8,000 per year towards life insurance,Rs 1 lakh per year towards PPF and the rest into diversified equity mutual fund through SIP. He should continue this same pattern even when his salary increases. This will take care of his property down-payment and retirement goals. The caution here is that it will be very tempting to dip into this pool of funds to buy things of desire like a high-end car. The focus on primary goals should not waver,only then this strategy will succeed.

Conclusion

Keeping a disciplined approach towards your investments and a clear focus on your goals will help you achieve most of your goals over a period of time.

Plan By Kiran Telang,Certified Financial Planner,Member of the Financial Planners Guild,India For expert guidance on your financial planning email us your details at expressmoneyexpressindia.com