Geojit’s Investment Analyst, Gibin John, helps a couple, who have been investing for many years with their financial planning. He advices them on how they can meet their future goals like building a new house, investing for their children’s higher education, daughter’s marriage, managing their loans, retirement, etc.
My name is Vivek aged 39 and my wife is Suparna aged 36. We have an eight year old son and a four year old daughter. They are studying in 3rd standard and LKG respectively. I am in Government service and my net Salary is ₹ 53,000 after all deductions. My wife is not working but she is planning to work after two years and expected salary then is around 30,000. Our monthly living expense is ₹ 25000 and car loan EMI is ₹ 4200, which will end this September.
I have a fixed deposit of ₹ 8 lakh in the treasury. I have not yet started any mutual fund, but I have shares worth ₹ 2 lakh. I am planning to invest in mutual funds on a monthly basis. I have also started Sukanya Samrudhi Scheme last year and I am investing ₹ 1000 every month. We have around 45 sovereigns of gold ornaments . We will get ₹ 15 lakh this year, from my share of sales proceeding of family property.
We plan to build a house after three years, the expected cost is ₹ 45 lakh. I have to create fund of ₹ 10 lakh each for kid’s higher education. I also want to create an amount of ₹ 10 lakh for daughter’s wedding expenses. Please give your suggestion to achieve my life goals.
Gibin John, a certified financial planner replies:
Having a secure job doesn’t always mean that you are financially secure. If a person fails to manage his/her income, expenses and investments properly, that may lead to miseries in future. Currently you have made some investments but have not attached them to any goal. If you start disciplined investments now onwards, then you may achieve your financial goals on time.
Your current monthly income is ₹ 53,000. After all living expenses of ₹ 25,000 and car loan EMI of ₹ 4,200, you are left with ₹ 23,800. The EMI will be over in September and after that you can move that amount also into investments. Then your total investable surplus will increase to ₹ 28,000.
Firstly, you have to create an amount for meeting any emergency expense. Generally, everybody has to create an amount which is equal to at least 3 to 6 months expenses as emergency fund and in your case required amount is ₹ 1,50, 000.You may earmark this amount from existing fixed deposit.
You are planning to create a corpus of ₹ 10 lakh each for son’s and daughter’s higher education. They are currently studying in 3rd standard and LKG, and you will require this amount after 9 years and 13 years respectively. If we assume that the education cost increases at 6%, then the cost of higher education which is ₹ 10 lakh today will become around ₹ 17 lakh in 9 years’ time and ₹ 21 lakh 13 years’ time. For accumulating this amount, you need to invest ₹ 10,000 and ₹ 7,000 per month respectively starting from today. Another goal is your daughter’s wedding and expected expenditure is ₹ 10 lakh. At 6% inflation rate the amount required for the marriage expenses will be around ₹ 32 lakh when she is 24 years old. For accumulating this amount you need to invest ₹ 4,500 per month. Along with these investments, you can also set aside the gold ornaments for this goal. These are long term goals, so you may accumulate this amount by investing in equity oriented mutual fund. If you are not ready to take this risk you may increase the contribution towards Sukanya Samrudhi.
Your another important goal is to build a house worth ₹ 45 lakh. This is an immediate goal, so you need to rely on a home loan along with existing investments. You are planning to build the house after three years. Currently you have ₹ 6.5 lakh in fixed deposit net after allocating some to contingency reserve. Also, there is shareholdings worth ₹ 2 lakh. If both these investments fetch an average return of 6% p.a. during next three years, the investment value will become ₹ 10 lakh. This year you are also expecting ₹ 15 lakh from your share in the family property. If you invest this amount in a fixed deposit then it will become ₹ 16.5 lakh after three years. So, the total value of your investments after three years will be around ₹ 26.50 lakh. To find the rest of the money for home, you will have to take a loan worth ₹ 18.5 lakhs. The EMI on this loan may be between ₹ 18,000 and ₹ 19,000 for fifteen years. With your income level, it would be difficult to find the amount for EMI payment without affecting other life goals. So, I suggest you start constructing the house only after your wife resumes her job. Then you can afford to manage both your investments and loan repayment.
Though you are in government service, let me remind you that the retirement benefits might not be sufficient to maintain the same standard of living sometimes. Try to build your own retirement corpus with whatever surplus you generate in the future.
Last but not the least, you should take a term insurance of ₹ 1 crore and a family floater medical insurance of minimum ₹ 5 lakh over and above employer insurance.