Geojit’s Investment Analyst, Gibin John, helps a couple with financial planning. They are new to financial planning and want to invest systematically to achieve their goals of buying a house, car, accumulate a corpus for their children’s higher education, and daughter’s marriage.
I am Avinash Dubey, a 39-year-old government employee and my wife is 37-year-old and is working in a private firm. My salary is ₹ 45,000 after all deductions and my wife is getting ₹ 60,000. We have a son, aged8, and a daughter, aged 4.Our monthly living expense is ₹ 40,000. We have not yet started any goal-based investments. Currently, we are investing in two recurring deposits (RD) of ₹ 10,000 each and this will end in February 2022. The maturity value of the RD would be around ₹5 Lakh. The balance amount is kept in the bank account. I have shares worth ₹ 2 lakh, a bank fixed deposit of ₹ 6 lakh, and a savings account that has ₹ 2 lakh. After reading this feature in the last edition, we decided to have a financial plan. Please advise us on how to manage our investments for achieving our life goals.
My goals are – purchase a flat worth ₹ 50 lakh within three years, buy a new car immediately worth a maximum of ₹ 15 lakh, for the higher education of kids; we estimate a cost of ₹ 10 lakh each. We also need to plan for our daughter’s wedding expenses when she is 26 years and assume it to be ₹ 15 lakh. Since I am a government employee I will get a pension after retirement. So I don’t have to plan for after-retirement life.
Gibin John, a certified financial planner replies:
As a government employee, you have job security and that is a positive side of your life. Good to hear that this feature motivated you to prepare a financial plan or think about having a financial discipline in life. It encourages us to conduct more financial literacy activities.
Your total family income is ₹ 1,05,000. After deducting the living expense your investable surplus is ₹ 65,000. From this monthly surplus, you are currently investing ₹ 20,000 as RD. Balance ₹ 45,000 is lying idle and you may be spending this amount for any other trivial expenses. A financial plan helps you to reduce idle money and allocate the investments properly.
Firstly, you should create a contingency fund for meeting any unexpected expenses. For this purpose, you may set aside ₹ 2 lakh in the savings account. This amount will be sufficient to meet the expense for five months. You may park this amount in liquid mutual funds for getting some additional returns than the savings account.
One of the immediate goals of yours is to buy a flat worth ₹ 50 lakh within the next three years. Your total investment value is ₹ 13 lakh (which includes your FD – ₹6 lakh, RD – ₹ 5 lakh, and Equity-₹2 lakh). So surely you need to rely on a home loan. You have to pay the down payment of 20% to 25% of the property value. In your case, this amount will be ₹12.5 lakhs. You may create this corpus by accumulating ₹ 35,000 every month for the next 3 years in debt mutual funds and in RD and get a corpus of ₹ 13.50 lakh. For the remaining ₹ 36.50 lakh you may take a home loan. The EMI of this loan will again be around ₹ 35,000 for fifteen years. The assumed interest rate is 8%. In short, from today onwards you have to keep aside a minimum of ₹ 35,000 for your dream home until retirement.
Your next goal is to buy a car. If this goal is not important for you then you may postpone it or reduce the budget to ₹ 10 or ₹ 12 lakh. For this purpose, you may utilize your existing investments. Kids’ education is another goal. You will require this amount for your son’s higher education after 9 years and for your daughter’s higher education after13 years. The cost of education will increase to ₹ 17 lakh and ₹ 21 lakh respectively, considering inflation. Also, the monthly investment required to achieve these goals will be ₹ 10500 and ₹ 7,500 in equity-oriented mutual funds. For daughter’s marriage, today’s ₹ 15 lakh will become ₹ 54 lakh if we take into account an inflation of 6%. To accumulate this corpus, you need to invest ₹ 7,000 in equity-oriented mutual funds till she is 26 years old.
As a government employee, you will be eligible for a pension so you may not have to accumulate a corpus for the retirement. However, after achieving your goals you should continue the investment for creating an additional corpus for retirement.
You should also take a term insurance of a minimum of ₹1 crore to protect your family. Also, take a family floater health insurance of ₹ 10 lakh to cover unexpected medical expenses.