28-year old Bharat, a graduate, has been working as a retail assistant in a large store for three years. Earlier, his father's salary used to help things along but since he died in an accident two years ago, making ends meet has been a problem. However, since he and his brother live in their own (albeit very small) house, he can afford to pay for his sibling's education.
What He Has:
- Income: Rs 30,000 a month
- Monthly Expenses: Almost Rs 20,000, including brother's college fee
- Rs 20,000 in a bank fixed deposit
- A small two-room inherited house
What He Wants:
- Get married, for which he should have savings of at least Rs 1 lakh
- Pay for his brother's education
What He Should Do:
- Emergency Fund: While Bharat and his brother make up only a small family, they should still have an emergency fund. He should set aside the money in a savings bank account (Rs 30,000) as his emergency corpus.
- Health Insurance: The next important step would be for Bharat to buy health insurance for himself and his brother. They are young and healthy, but sudden medical problems can strike anyone. A basic family floater health insurance of Rs 50,000 to 1 lakh will cover both of them. Buying health insurance when young and renewing it regularly will be of great advantage as they grow older. These two articles have all the information they need: How to buy health insurance and A Top Up for your medical needs.
- Life Insurance: Bharat's brother is dependent on him. Given the circumstances, he should take a term insurance policy of about Rs 10 lakh. Since he is young, he can take a 25 year policy for barely Rs 100 to 150 a month, which he can well afford even with his limited income. He should not buy ULIPs, endowment plans or any other insurance product that mixes savings and insurance. For information on insurance, he should read: Lest calamity strikes and How to really buy insurance. A wide range of advice and product-specific information is available at https://www.valueresearchonline.com/insurance/
- Investment Portfolio: To accumulate Rs 1 lakh for his marriage, Bharat should invest Rs 4,000 per month in a short term debt fund for the next two years. He should invest his additional monthly savings in a good ELSS fund that will help him build long-term wealth while also allowing him to save tax.