Express Clinic

Profession: Shashank works with a private bank,Pratima works with a Call Centre

Net annual incomecombined

Rs 8.75 lakh

Status amp; goals

Shashank,32 and Pratima,30 have been married for six years. They have a son Rohan,2. Until now they were busy in clearing off their debt burden,which they had taken at the time of their marriage and for other family responsibilities. After having cleared debts they are seeking guidance for their financial future. They live with their parents but don8217;t want to plan the future on the basis of inheritance expected. Buying a new car,good education and marriage for Rohan and comfortable retirement are some of their goals

Needed

A roadmap which will help them plan for a secure financial future of their son along with a comfortable post-retirement life

Net monthly surplus

Rs 30,000

Findings

Emergency fund: They have not kept enough liquidity in savings bank account.

Health Insurance: They are dependent on their employer provided insurance.

Life Insurance: None of them is having any life insurance cover.

Investments: They are sitting on zero investments till date except some savings in PPF and that too saved for tax saving.

Recommendations

Emergency Fund:

They should increase the savings account balance to R1 lakh and maintain it as an

Emergency fund.

Express Tip: One should be prepared to face any financial emergency by maintaining 3-6 months of expenses in liquid form

Life Insurance:

It is advisable that both buy a separate life insurance cover. They should buy cover of R1 crore and R75 lakh respectively. The premium outgo for online term plans would be R19,101 and R10,365 respectively.

Express Tip: Adequate life insurance is important for those who have financial dependents and/ or liabilities.

Health Insurance:

They should buy a health insurance floater policy of at least R 5 lakh sum assured which should cover all three of them. This coverage should be over and above the employer provided health insurance. The total premium outgo will be R10,500.

Express Tip:It is always advisable not to depend on your employer provided insurance coverage due to many restrictions and sub limits coming in the group policies these days.

Accident Insurance:

They are advised to buy a comprehensive accidental insurance policy separately for each of them with sum assured of R1 crore for Shashank and R 50 lakh for Pratima. The total premium outgo in this case would be R 19,190.

Express Tip: Disability is more horrifying and has worse financial repercussions than death,so this risk should be adequately covered.

Buying a Car:

They should start saving R14,700 per month in bank recurring deposit for this goal. As the goal is of very short term they should not expose themselves to risky asset class for this.

Rate of return assumed 8 per cent post tax.

Express Tip: Always try to avoid any kind of loan to purchase any depreciating asset.

Retirement: Start investing R10,200 per month with the asset allocation of 80:20 as equity:debt to save towards this goal. They should use diversified equity mutual funds,PPF and EPF as investment tools for achieving this target. Rate of return assumed 14 per cent in equity funds and 8 per cent in PPF/ EPF

Express Tip: Planning for retirement at such a young age is a good idea as it involves fairly less investment allocation compared to planning in the later years of life.

Rohan8217;s education: Start saving R7,350 in the ratio of 80:20 in equity and debt to achieve this goal. Rate of return assumed 14 per cent in MFs.

Express Tip: Having a proper target to achieve is important for selection of an adequate asset class to invest in. More the time,more allocation can be done towards equity.

Rohan8217;s Marriage: Start saving R2,000 in the ratio of 80:20 in equity and debt to achieve this goal. Rate of return assumed 14 per cent in equity funds and 8 per cent in PPF.

Express Tip: Finish off your responsibilities before entering into your golden years of retirement. One should always plan accordingly,to reduce the burden on the retirement years.

Conclusion

Taking loan in the early years of financial life and that too for consumption purpose is one of the biggest financial mistakes. Start off with a planning and remain focussed with your finances to make your future comfortable.