Lighten your Goals | Value Research Outstanding loans take away 40 per cent of your income, leaving you with little room for your other goals...
The Plan

Lighten your Goals

Outstanding loans take away 40 per cent of your income, leaving you with little room for your other goals...

I am 31, working in the private sector and earning a monthly income of Rs 65,000. My wife's monthly income comes at Rs 25,000. Our monthly expenses are Rs 25,000. We live with my parents and have a 3-year-old daughter. We also plan to have another child in the coming years. I have been investing in mutual funds since 2010 through monthly SIPs of Rs 18,000. My current savings include Rs 4.6 lakh in PF, Rs 6.7 lakh in mutual funds and Rs 1 lakh in bank fixed deposit and savings. I have two home loans on which I pay Rs 27,000 and Rs 9,000 as EMI and the loans are insured. I have a pure term cover for Rs 50 lakh with accident rider for Rs 20 lakh cover. I also have LIC Jeevan Anand policy with sum assured of Rs 5 lakh. My employer has provided a term cover of Rs 25 lakh and a health cover of Rs 5 lakh for myself, wife and children. My parents have a family floater health policy with cover of Rs 2 lakh. I would like to clear both my housing loans in the next 10 years. I want to accumulate enough for the education and marriage of both my children. Finally, I want to maintain an income of Rs 50,000 per month during my retirement days.
— Srinivas Vinjamuri

People living on EMIs is common these days. But that does not mean it is the best way to manage your financial life. You are young, with several years to go before you retire. Starting your financial life with real estate debts is not the best way out. You should consider giving up one of the houses, especially with your wife likely to take a break for 4 years as you have mentioned. Not only will your income dip when your wife takes the break, your expenses too will go up with the arrival of your second child. You need to factor in all this.

You have got the head start with the right type of life insurance, though you can consider exiting LIC Jeevan Anand, which is an endowment policy, with low insurance and high premium outgo.
* If you switch from Jeevan Anand to a pure risk cover, you will save on the premiums and also increase your insurance cover
* Instead of depending on an employer-provided health insurance, opt for one on your own
* You have Rs 1 lakh in bank FD and savings, this is inadequate as an emergency fund, given ageing parents and a young child at home and two home loans being serviced
* Create an emergency fund that is equivalent to 4-6 months of your monthly EMI and expenses

Although you started investing in mutual funds only three years ago, you have made a good choice of funds.
* It pays to invest regularly through SIPs instead of lump sum
* You have stopped a few SIPs, which is good, considering the underperformance in those schemes. However, you need to divert the invested sum to a better faring fund and leave it idle
* You should consider investing in tax planning mutual funds (ELSS) as these provide you with the dual benefit of tax savings and wealth creation over time

Home loans

Servicing two home loans eats 40 per cent of your income, which is on the risky side, especially if one of you were to go without income for even a brief period.
* Since your wife will be on a sabbatical, you need to think seriously on whether you need two homes and if you can afford it
* You should consider giving up one of the homes, depending on which one you would want to retain to reduce your debt burden

Financial goals
You have not articulated exactly how much you need for each of the financial goals. We have assumed you will need Rs 10 lakh for each child's education and Rs 12 lakh each for the marriage.
* Assuming you will retire at 60 and need equivalent of Rs 50,000 for 25 years in retirement, it will amount to a corpus of Rs 1.5 crore over the next 29 years
* We have assumed inflation of 6 per cent when arriving at the future value of the sum you will need
* Your goals to provide education and getting your children married are possible and so will be your need for Rs 50,000 a month in retirement which would actually be Rs 2,70,000 after adjusting for inflation

What you will not be able to achieve is to repay both the home loans in the next ten years. You will be much better off by reducing your debt, focus on other goals and, if finances permit, look for a second home some years later.

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