Express Clinic

Profession: Works with an Event Management Firm

Net annual income

Rs 3,60,000

Status amp; goals

Advait stays with his parents in Mumbai suburbs. He has recently moved to a new job. He has a very relaxed lifestyle and has not paid much attention to savings and investments. He loves to splurge on gadgets. He attended a meet in his office on financial planning awareness and hence wants to know more about how he can improve his financial life with better planning. Advait is single and has no dependents.

Needed

Young Advait does not have too many worries in life. He needs a plan to improve his financial life and have a secure future

Net monthly surplus

Rs 10,000

Current Investments

Mutual FundS ELSS : R60,000

Savings Account : R10,000

LIc Self : R1.5 lakh

Total premium paid : R30,000

Health insurance : Nil

Findings

Emergency fund: There is no liquidity available at all. Since he is living with parents,he has not really considered this idea at all.

Life insurance: He has taken a single premium ULIP which gives him an insurance cover of R1.5 lakh for 10 years.

Health Insurance: Advait has no health insurance. His employer also does not provide any health benefits currently.

Investments: He has not started investments except for those done with an intention of saving taxes.

Retirement: He has not even remotely thought about retirement or saving for it.

Liabilities: R84,000 outstanding credit card balance. Advait loves gadgets. He has bought a high end mobile and some other gadgets through his credit card. He was unable to pay the entire outstanding,so he has paid the minimum amount.

Recommendations

Cashflow Management:

Advait has a high expense ratio for a single person. He needs to streamline his expenses by creating a budget. Some goals can be met if he reduces expenses to R15,000 pm.

Express Tip: Being aware of your spending is essential to manage budgets and create surplus.

Debt Management:

Credit card debt has the highest chance of metamorphosing into a debt trap. He should borrow money from his parents to clear off this debt immediately. He can repay them over 17 months in equal installments of R5,000. In future he should restrict his spending to his repaying capacity.

Express Tip: A debt trap can derail any kind of plan that is created to achieve goals.

Emergency Fund:

At present he has insufficient cashflows to create an emergency fund for himself. Since he is staying with parents,the immediate need is not as urgent. But eventually this should be done,once other aspects of cashflow are under control.

Express tip: This fund is important,but in certain cases where other income earners are available this can take a back-seat temporarily.

Health Insurance:

Advait should purchase a personal health insurance for R5 lakh. This will cost him about R6,000 per annum. This will avoid financial trouble for him and more so for his parents in case he needs to spend on his health anytime.

Express Tip: Lack or shortfall in health insurance might wipe out savings and lead you to debt.

Life Insurance:

Currently,he does not need life insurance as there is no dependent and no long term liabilities. He should look at buying term insurance policy when either of these situations arise.

Express Tip: Life insurance is required to cover loss of income for dependents and cover liabilities.

Car Purchase:

He will need an investment of R9,000 pm for two years and then a loan of R3 lakh to meet his goal. His cash flow currently does not permit this. Instead if he can modify his goal to buying a used car for about R2 lakh in three years,it can be achieved. He can start a recurring deposit RD for R5,000 pm for three years to achieve this.

International Holiday:

He can invest R2,000 per month in a debt MF for three years to accumulate about R 80,000. At present he will have to modify his goal or delay it.

Planning for Wedding:

After the car purchase and planning for holiday,he is left with only R2,000 pm to invest for this goal. He can look at hybrid MFs with equal component of debt and equity. If we assume a rate of return of 10,he will be able to accumulate about R2 lakh. He can increase the contribution towards this goal once his income increases.

Retirement:

There are no funds left for this goal. Even if he starts investing R1,000 pm,at a rate of return of 12,he can accumulate R82 lakh by the time he retires. An increase in this investment to R3,000 will fetch him a corpus of R2.45 crore. So looking at the benefits,he should look at rationalising his expenses and find avenues to start what ever small amount he can contribute towards this goal.

Express Tip: Small investments done over very long periods can make a significant difference to the corpus created.