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Planning Finances for a Young Couple

A young couple planning to start a family should keep cash at home and in bank savings account for quick accessibility

I am 30 year old married male . We are planning for a kid next year. I have my own house which is under construction and have to repay three loans. I have bought life insurance from LIC and Max Life and my employer has provided me health insurance. I have savings into Provident Fund, Recurring Deposit and my wife has some jewellery. My goals are as follows:

  • Buy a second car in 3 to 4 years
  • Trip abroad after 5 years
  • Child education and marriage
  • Comfortable retirement
I wish to retire at 55 years of age. I need advice on how to invest so as to meet my goals.
- Nitish Jain

What they have (cash flow)

  • Monthly income of ₹1 lakh
  • Monthly household expense of ₹40,000

What they want (goals)

  • Second car
  • Trip abroad
  • Child education and marriage
  • Comfortable retirement

What they should do
Emergency fund: They must create an emergency fund equal to at least three-month expenses for now and increase this sum after the birth of their baby to six-month expenses. Keep cash at home and in bank savings account for quick accessibility.

Health insurance: Nitish is insured by his employer as of now. He needs personal health insurance as well. The employer will insure him only till he is working with the company. Going by his needs, a family floater policy covering him and his wife would be a suitable plan. Apollo Munich Easy Health and ICICI Lombard Complete Health Insurance Plan are recommended policies.

Life insurance: Nitish is under-insured. He must go for a term insurance policy of at least ₹50 lakh. He has a total debt of ₹31 lakh, which makes it very important for him to insure himself adequately. As for his existing policies, LIC Jeevan Saral and Max Unit Linked Plan are near maturity; he may continue with these. Other endowment plans have a long term to mature, so he must ask insurers the possible exit values as such mixed policies are neither provide sufficient insurance nor inflation-beating returns.

Investments: The couple will plan for a baby next year, which leaves them with 19 long years for kid's higher education and 26 years for marriage. They must start investing via SIPs into large and mid-cap and mid and small-cap funds. They are already contributing to PF and RD, so there is no need to choose a debt fund yet. But once they reach near their goals, switching to debt in a gradual manner becomes important. Nitish wishes to retire at an age of 55. He needs to reconsider his decision as fulfilling goals and leading a comfortable retired life would otherwise become tough. Retiring early would leave them with zero money during their later years. Nitish may continue investing in the tax-saving fund.