Their main cause of worry is their daughters education and marriage. They are also concerned about the younger one who needs special care and attention. Viney has a home loan liability and wants to repay it as soon as possible. He expects 10 per cent per annum increase in his annual income. Due to family responsibilities he has not been able to plan out his finances. Now he wants to focus on his personal finance and plan his future. Monthly cash inflow Rs 80,000 (Post Tax) Monthly cash outflow PF Rs 12,000 Mutual Fund SIP Rs 4,000 Bank Recurring Deposit Rs 5,000 Insurance Premium Rs 4,167 (Premium Rs 50,000 p.a,Sum Assured: Self Rs 12 lakh and spouse Rs 10 lakh) Home Loan EMI Rs 23,000 Household Expenses Rs 12,000 School Fee Rs 6,000 Miscellaneous Rs 3,000 total Rs 69,167 net surplus Rs 10,833 Financial Goals Elder Daughters Education (2021) (Assuming education cost inflation 10 per cent p.a.) Current Cost Rs 10 lakh Future Cost Rs 25.93 lakh Younger Daughters Education (2026) Current Cost Rs 10 lakh Future Cost Rs 41.77 lakh Elder Daughters marriage (2026) (Assuming education cost inflation 10 per cent p.a.) Current Cost Rs 10 lakh Future Cost Rs 23.96 lakh Security provision for younger daughter (2028) Future Cost Rs 1.5 crore Home Loan Repayment Retirement Planning (2030) (Assuming education cost inflation 6 per Current Monthly Expenses Rs 20,000 Future Value Rs 60,512 Corpus Required 1.56 crore Findings No emergency fund: Viney doesnt have any emergency fund corpus to tide over unforeseen financial crunch Poor asset allocation: Asset allocation is not done properly. His asset allocation is tilted towards more of debt. Life Insurance: Both Viney and his wife are under insured. Moreover,the insurance policy selection is not good. Accident Insurance: Both Viney and his wife are under insured Health Insurance: Hes done a right thing by purchasing a separate health insurance policy for family even if they all are covered under the policy of employer. Secure Retirement: Viney and his wife will receive Rs 1.20 crore as retirement benefit in total. In addition,they will get monthly pension of around Rs 20,000 after retirement. Recommendations emergency Fund Rs 1.40 lakh Keep Rs 1.40 lakh in saving bank a/c as liquid money. Express Tip Always maintain emergency fund equal to 3-6 months of monthly necessary expenses in your bank saving account to meet up any exigency. Life Insurance Rs 60 lakh Purchase term plan for you and your wife with Sum Assured of Rs 60 lakh for self and Rs 40 lakh for your wife. The premium of online policy will cost Rs 14,760 p.a. in your case and Rs 8,360 p.a. for your wife. Express Tip All the earning member of the family should be adequately covered. Online policy is the cheapest option as it doesnt involve distribution cost. Accident Insurance Rs 50 lakh: Buy a personal accident insurance policy for both earning members with sum assured of Rs 50 lakh for self and Rs 25 lakh for spouse. Do take it with temporary total disablement benefit of at least Rs 10 lakh for both of you also called as income insurance. The premium cost with all the mentioned benefits would be Rs 9,000 Express Tip Where Life Insurance covers the financial responsibilities in case of breadwinners death,accident policy has equal importance as it covers the disability part. Health Insurance To avoid any future issue Viney should disclose (if not yet) the younger daughters health problem to the insurance company. Express Tip Disclosure of current health status is required to avoid future problem and easy processing of claims if any. Elder Daughters Education and Marriage (Assuming equity return @ 14 per cent and debt @8 per cent) Start saving Rs 11,100 p.m. Save Rs 8,880 in equity mutual funds and Rs 2,220 p.m. in public provident fund a and keep on increasing the amount with 10 per cent per annum in line with your increase in annual income. Express Tip PPF is one of the best saving instrument with safe and tax free returns Younger Daughters education (Assuming equity return @ 14 per cent and debt @8 per cent) Start saving Rs 5,100 p.m. Save Rs 4,100 in equity mutual funds and Rs 1,000 p.m. in PPF a/c and keep on increasing the amount with 10 per cent per annum in line with your increase in annual income. Express Tip If the goal is more than 10 years away,park most of the investments in equity Safety provision for younger daughter For this you have to save Rs 11,800 p.m. But after all the savings surplus of Rs 3,600 is left. So Viney should start saving with this and keep on increasing the amount with Increase in income every year. Third year from now he should be able to start saving enough money for this goal. Express Tip Well thought of goal with clear monetary figures help in the actual calculation of time frame left and thus product selection Home Loan Repayment Once Viney is through with all his savings,then he can plan paying off his home loan by increasing the amount of installment. Third year from now he may be able to start doing that. Express Tip Plan for taking loan only after providing enough money to different goals. Retirement Planning No need for any allocation. It will be taken care by the retirement benefits to be received through employer. Express Tip EPF is a good example of power of compounding which helps in growing your monthly contributions into a huge corpus. Existing Investments Discontinue money back policy and pension plan and use the surrender value to pay off your home loan. Express Tip One should not mix insurance with investments. Moreover traditional policies are relatively costly. For expert guidance on your financial planning email us your details at expressmoney@expressindia.com CONCLUSION Every financial decision impacts your overall finances. So,one should be clear in mind before taking a loan or start investing as to how it will impact other goals. Proper understanding of various investment options is a must.
