Personal Finance

Set your life goals in line with financial surplus

SURESH PARTHASARATHY | Updated on January 26, 2013 Published on January 26, 2013

I am 37 years old and my net income is Rs 35,000. My wife is 34 and earns Rs 15,000. We have a 9-year-old daughter and a son who is in pre-school. My monthly expenses are Rs 20,000. I save Rs 30,000. I live with my parents in their house. I manage the monthly expenses of the entire family. My parents are in their 70s with no major illness. The property is jointly held by them. I will be entitled for the property after their demise.

My goals:

To provide funds for my children’s professional education.

For my daughter’s marriage, I may need Rs 50 lakh (in present value), including gold.

I would need funds to take care of my retirement without depending on our children.

Our current EPF balance is Rs 3,55,000. I contribute Rs 1,783 and my wife puts in Rs 780 a month. In both our cases, our employer’s contribution is Rs 780 a month.

Investment details:

I have two insurance policies for a sum insured of Rs 2 lakh and my annual premium is Rs 13,000. It will mature in the next 7 years.

Rural life insurance with a monthly premium of Rs 3,645 for a sum insured of Rs 1 lakh.

— Thomas

Financial planning is most important for middle income rather than higher income group. Unfortunately, this segment ignores planning. It is always better to start early as with the help of compounding returns, you can build wealth with ease.

You have started rather late. So, you should be more realistic about your goals. For instance, Rs 50 lakh in present value for your daughter’s marriage, if inflated at 7 per cent, becomes Rs 1.37 crore after 15 years. You may need to sacrifice all other goals, if you wish to attain this.

If you are more prudent, you can conduct a reasonably good marriage (with 40 sovereigns of gold) at about Rs 20 lakh in present value. If you inflate this, it will be Rs 55 lakh and to reach this you need to save monthly, a sum of Rs 11,700 at an annualised return of 12 per cent (same return applied for all calculation).

Education

Admission will cost you Rs 8 lakh. If the same inflated at 7 per cent, it will be Rs 13.75 lakh for your daughter and Rs 22 lakh for your son.

For your daughter, you need to save a sum of Rs 8,840 for the next 96 months and for your son you should invest Rs 4,660 for the next 180 months.

Retirement

Your current annual living cost of Rs 2.4 lakh will be Rs 9.9 lakh at retirement if inflation continues to be 7 per cent. To receive such an annual income at retirement, you should have a corpus of Rs 1.95 crore and it should earn one per cent return over and above inflation. Current balance and your future EPF contribution along with that of your employer’s (if continues to grow at 8.5 per cent) will amount to Rs 35 lakh. To meet the shortfall you need to save monthly a sum of Rs 15,500.

Given your current cash flow, you will have a deficit of Rs 10,000. Hence you can accumulate more for your retirement once your surpluses increase. Redeploy insurance proceeds towards this goal. Take a term insurance cover for Rs 1.5 crore.

Mail your queries to >fp@thehindu.co.in

(The author is CEO, myassetsconsolidation.com).

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