I am 30 and draw a monthly salary of about Rs 60,000 and am able to save Rs 25,000-Rs 30,000 each month. My wife and a two-year-old daughter are my dependents. I plan to work for the next 25 years and we are covered under company health insurance plan for Rs 5 lakh. My father gets a good pension and my mother is yet to retire. They both are covered by the CGHS and we live in our own house, with no outstanding loans. I have monthly SIP investments in Canara Robeco Equity Tax Saver, DSPBR Top 100 Equity, HDFC Prudence, HDFC Top 200 and some lump sum investments in Magnum Taxgain, which I will redeem when the lock-in is over. For the past three years, I have also been accumulating ITC shares from time to time. I have an LIC Jeevan Anand policy for Rs 5 lakh on which I pay Rs 25,173 annually and my average bank balance is Rs 70,000. My goals are to save for my daughter’s education and marriage, take an annual vacation for Rs 50,000 every year and have a monthly retirement income of Rs 40,000 at current prices when I retire. Please advise if my goals can be achieved.
You understand the impact of inflation and hence wish to plan for your future needs based on current costs. This financial prudence will go a long way in your favour. However, the same financial caution is not evident the way you have handled some of your finances so far. What will work in your favour is that you have age on your side to develop on the start you have made. Moreover, you have no liabilities along with the worry to own a house, which most people face. Some of your financial goals like annual vacation could prove expensive in the long run. For instance, assuming an inflation rate of 6 per cent, the current Rs 50,000 on vacations will cost you Rs 90,000 ten years from now. Think about having one every few years at best or rescale the vacation cost that you have ear-marked at present.
The foundation of a financial plan rests on adequate life insurance. You are inadequately insured and Jeevan Anand is not a pure risk term plan, but a combination of endowment and whole life, which makes it a combination of savings and investments instrument.
•Take an adequate term insurance plan, which costs less because of it being pure risk policy. Being one of the chief earners in your family, assess how much and for how long will your dependents need to be financially supported, if something was to happen to you. You should also consider a term policy for your wife
• With a young child and ageing parents, financial emergencies will be common. You are maintaining an average bank balance of Rs 70,000, which makes up for a little over two-month’s household expenses. Consider increasing this sum to three month’s reserves with some cash at home for emergencies
• The health cover is adequate for the time being, but keep reviewing it
You have investments in good funds that are highly rated with a proven track record, indicating a large-cap growth orientation with 123 stocks, which provide diversification. You should continue investing in these funds and do consider redeeming investments in Magnum Tax Gain when the lock-in gets over.
• Review the progress made by your investments regularly to ascertain if it is headed towards your financial goals and make changes to selected funds if necessary
• Investment in direct equity is risky, however, stocks like ITC are good to invest in. If you think you have the flair to invest in good bluechips, do so in small proportions
You have not articulated your financial goals the way you have articulated for retirement and vacations. We assume you will need Rs 10 lakh for your daughter’s education 17 years from now and Rs 20 lakh for her wedding 20 years from now. Based on current costs, we have arrived at the future cost of these goals assuming 6 per cent annual inflation to work on the monthly investments you need to set aside.
• Your financial goals are achievable based on your current investment surplus. But we have not accounted for the birth of a second child which will only add to costs and more financial goals
• Work on the existing goals and appropriately increase your investments or modify your goals depending on your ability to invest
• Moreover, you may need to reconsider your plan to retire at 55, if need be, to meet all your financial goals.