Planning Whizz!- September 2021


I am Dinesh, 34 years old and my wife’s age is 33. We have a son, aged 6 and he is studying in 1st standard. We are working in a private company. Currently, I am getting an average monthly income of ₹65000 and her salary ₹35,000 after all deductions. Our monthly living expense is ₹40000.

We are writing this mail for getting valuable suggestions and guidance from you on how to manage our money. Now I have a share-holding worth ₹1 lakh and mutual funds worth ₹4 lakh. Also, my bank saving account balance is ₹6 lakh. We are residing in our own flat.

We need ₹12 lakh for our son’s higher education. I want to buy a plot within 3 years and the expected cost is ₹25 lakh. If possible, I want to change my car after five years and the expected cost is ₹10 lakh. Please guide us on how to manage our investments, achieve our goals and build a retirement corpus on time.

Gibin John, a certified financial planner       replies:

A well prepared and implemented financial plan can help any individual to achieve all realistic goals in life. It is important to prepare a financial plan for your personal finance.

Your monthly average income is ₹1 lakh and expense is ₹40,000.  The surplus amount available for investment is ₹60,000. Firstly, you must set aside a contingency fund. This will help you to meet any unforeseen situation in your personal life. Normally the size of such a contingency fund must be at least 3 to 6 times of the monthly expenses. We recommend you earmark the existing bank account balance of ₹3 lakh as an emergency fund.

Let us start with your goal of buying a property in three years’ time and expected cost of which is ₹25 lakh. You have already fixed the budget for the goal, so we are not considering the inflation on this cost. For creating this amount, you will have to invest ₹64,000 every month in debt mutual fund which has the capability to create more returns than the bank recurring deposit. But currently your surplus amount is ₹60,000. You can create a corpus of ₹20 lakh by investing ₹51,100. Therefore, either you reduce the goal amount to ₹20 lakh or you may allocate the existing equity and mutual fund investments to meet this goal.

Your next goal is your son’s higher education. You are expecting ₹12 lakh to be the education cost. If the education cost is inflated at 8%, then this cost will become ₹28 lakh after 11 years. As for the next three years, you need to allocate more amount for property purchase. Therefore, you can start investing towards education goal only after three years. This goal will have a long duration so you can start investing ₹20,500 every month in equity-oriented mutual funds from after completing the first goal. We assume an average 9% return from this investment during this period which will help you fund the goal.

You are also planning to change your car in 5 years’ time and the expected cost is ₹10 lakh. But this is an optional goal for you. We are expecting the car cost of the same variant may increase by 6% p.a., so the car value at the time of goal date will be at least ₹13.50 lakh. It is difficult to find the entire amount from your existing investment and you will not have enough to start a new investment for this goal after allocating existing surplus amount to other goals. Balance surplus amount of ₹9000 which is left after investment for the first goal may be utilised for your plan to buy a new car. You will be able to create an amount of ₹6 lakh in five years. Also allocate ₹3 lakh from bank deposit. This ₹3 lakh would become ₹4 lakh after 5 years. The balance amount required may be funded using a car loan. You can utilise the amount ₹9000 which was set aside for this goal to pay further EMI.

For your retirement plan, you are expecting a living expense of ₹ 25,000 in today’s value. You are planning to retire at the age of 55. You have 21 years more for retirement. You can expect the cost of living to be ₹84,989 if ₹25,000 is inflated at 6% per year. For getting this inflation-adjusted amount during the post-retirement period, until 80 years, you should have created a corpus of ₹2.27 crores at the time of retirement. For accumulating this amount in the next 21 years, you have to invest ₹39,500 per month, preferably in equity-oriented mutual fund. Your retirement period as well as balance working period is the same. You should invest       ₹60,000 per month for achieving the goals of your son’s higher education and retirement after three years from now. Also, try to invest higher amounts as you get salary increments in your career.

You should also take a family floater health insurance of ₹5 lakh immediately to protect yourself from any unforeseen medical expenses. Also, take a term insurance of a minimum ₹1 crore to meet the living expenses of the family and fund family-oriented goals even in your absence. To achieve this, you will need to find ₹2000 per month from your existing income.


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