Geojit’s Investment Analyst, Gibin John, helps an NRI couple with their financial planning. He advices them on how they can plan for their child’s higher education, setting up a business and accumulate a corpus for retirement.
I am an NRI aged 43. I am planning to retire at 50 and do business after that. My family consists of my wife, aged 40 and son aged 14. Son is studying in 9th grade. My wife is a home maker. Currently I have a monthly income of Rs.2 lakh and monthly expense is Rs.40000. But I spend around Rs.70000 a month including other expenses. I feel my investments are not good enough. So I am writing this letter.
I have a house worth Rs.1 crore. Also I have a 10 cents plot. The value of my plot is 10 lakh/cent. I have Rs 4 lakh in savings account. I recently closed my home loan by paying a lump sum amount. Also I have mutual fund investment worth Rs. 3 lakh.
After three years I need 15 lakh for my son’s higher education. I am planning to start a business after retirement. The expected capital investment for the business is Rs.25 lakh. I expect to earn Rs. 40000-50000 from this business. Kindly advise me how to achieve my goals.
Gibin John, a certified financial planner replies:
Analysing your data, you have less liquid funds for immediate/unexpected requirements and your major investments are in property. First, you should create a pool of contingency fund to meet any emergency situations. After deducting the living expense Rs.70,000 from current monthly income of Rs.2,00,000, you can save up to Rs.1,30,000. Currently this amount is not used for any investment purposes. But once you allocate the surplus money for creating your goal corpus then it will be difficult to find the amount for contingency requirements. Ideally 6 months’ salary should be kept as emergency fund. For creating this fund you may consider savings account amount of Rs.4 lakh and also make gradual additions to this fund by parking Rs. 30000 for next two years in the same account.
Your immediate goal is your son’s higher education. You need Rs 15 lakh for his education and you need to create it within three years. If the cost of education increases every year at 8%, you will need Rs19 lakh after three years. For creating this corpus you should invest Rs.48000 in less risky investment products.
Another goal is creating a corpus for starting business after retirement. You have estimated Rs.25 lakh for this purpose. After 7 years, if the cost increases at 6%, the amount required will be Rs.38 lakh. For accumulating this amount you should invest around Rs.35000 per month till your retirement.
You are planning to retire at 50, but you didn’t mention any details about your retirement plan. I assume that you have estimated your expected income from the business would be sufficient to meet your retirement expenses.
Your current monthly household expense is Rs.40000. At current levels of inflation you will need Rs 60000 after seven years. For maintaining the same standard of living in your post-retirement period, you may have to create a corpus of at least Rs.2.05 crore. Your expected minimum income from the new business is Rs.40000 per month. If we consider this cash flow, then your required retirement corpus will come down to Rs1.41 crore. After achieving the required contingency fund and amount for your son’s education you can utilize the amount which you were investing towards these goals for creating retirement corpus. From these investments you can create Rs.47 lakh by the age of 50. Balance amount for retirement has to be generated from the sale of the plot whose current value is Rs.1 crore.
Along with the above, we also urge you to consider insuring your life and health which is essential even before you think of investing.