Balasubramaniam can begin by building an emergency corpus of Rs 2.94 lakh, which is equal to his six months’ expenses
S. Balasubramaniam stays in Chennai with his homemaker wife and a three-year-old son. He brings in Rs 50,000 a month as salary, of which Rs 30,000 is spent on household expenses, Rs 15,000 is given to his parents, and Rs 1,000 invested. After other sundry expenses, he is left with a surplus of only Rs 167. However, he has a long list of goals, including saving for emergencies, child’s education and wedding, buying a car and a house, starting a business, and for retirement. According to Financial Planner Pankaaj Maalde, it will be difficult for Balasubramaniam to reach his goals with such low surplus unless he decides to curb his household expenses.
He can begin by building an emergency corpus of Rs 2.94 lakh, which is equal to his six months’ expenses. He can assign his cash worth Rs 2 lakh and surrender value of insurance plans to build this corpus, and it should be invested in an ultra short-term fund. Next, he should focus on his retirement, for which he will need Rs 4.25 crore in 27 years. For this, he can assign his EPF corpus worth Rs 4 lakh, which will yield about Rs 80 lakh in the given time. For the remaining amount, he will need to start an SIP of Rs 14,000 in a diversified equity fund. Since he only has Rs 1,000 that he is currently investing in mutual funds, he will have to start with this and increase it with the rise in income. For all the other goals—kid’s education and wedding, buying a car and house, and saving for business—he will have to wait for a rise in income before he can start investing. He is advised to prioritise his retirement and child’s education when he does begin investing.
As for life insurance, Balasubramaniam has two traditional plans that offer a cover of Rs 5.5 lakh. Maalde suggests he surrender these and buy an online term plan of Rs 1 crore at Rs 833 a month. For health, he has a cover of Rs 2.6 lakh provided by his employer, but should buy a Rs 10 lakh family floater plan, which will cost Rs 1,250 a month. He is also advised to buy an accident disability plan of Rs 25 lakh at a cost of Rs 334 a month.
How to invest for goals
*Due to lack of surplus, investment for these goals will begin after rise in income.
** The SIP amount required for this goal is Rs 14,000, but due to lack of surplus, start with Rs 1,000 for now.
Annual return assumed to be 12% for equity. Inflation assumed to be 7%.
Financial plan by Pankaaj Maalde Certified Financial Planner
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