ATM :: Living with parents? Best time to save


Gaurav Mashruwala, TNN | Apr 25, 2015, 07.08AM IST | Times of India

ATM

Mohit Khullar (31) lives with his wife Manika (28) in Haryana. He was born and brought up in Punjab. They have a two-year-old daughter, Ashwika. Mohit is an electrical engineer and currently works in the private sector while Manika is a homemaker.

What is the couple saving for?

They want to purchase a house worth Rs 45 lakh two years later as an investment. Rs 50,000 for Ashwika’s education two years from now. A corpus of Rs 15 Lakh after 24 years for Ashwika’s marriage. For their retirement, the couple wants Rs 1 core after 30 years. Apart from these goals, they also wish to own a luxury car worth Rs 10 lakh after four years and go on foreign travel.

The costs will be revised based on inflation.

Where are they today?

Cash flow: The gross annual inflow from all sources is Rs 12.48 lakh against an outflow of Rs 8.05 lakh. The outflow includes routine household expenses, taxes, insurance premium and contribution to provident fund

Net worth: The market value of all assets owned by the couple is Rs 21.31 lakh. Out of this, Rs 3 lakh is for personal consumption in the form of car. The rest are investments. They do not have any liability as of now. The house that they are living in is owned by Mohit’s parents.

Contingency fund: Against the mandatory monthly expenses of Rs 44,000, balance in savings bank and FD together amounts to Rs 2.80 lakh. This is equivalent to 6 months’ reserve.

Health & life insurance: There is a Rs 3 lakh health cover provided by employer for the entire family. Total life insurance of Mohit is Rs 40 lakh, out of which Rs 30-lakh cover is provided by the employer.

Savings & investment: Assets for savings and investment include Rs 2 lakh in savings bank, Rs 80,000 in bank FD, Rs 4 lakh in direct equity, Rs 50,000 in bonds, Rs 86,000 in a provident fund and Rs 15,000 in post-office schemes.

Fiscal analysis:

The couple’s rate of savings is good. The balance in savings bank should be reduced and they must enhance health and life cover. Most assets are investment-oriented because they are living in their parental house.

The way ahead

Contingency fund: Their three months’ mandatory expense reserve should be around Rs 1.30 lakh. Of this, they should keep about Rs 30,000 in form of cash at home and the rest in savings bank account linked to a fixed deposit.

Health & life cover: Mohit and Manika should have a health cover of Rs 5 lakh each and Rs 3 lakh for their daughter. Considering Mohit is single earning member of the family, he should opt for a life cover of Rs 1 crore for now and increase to another Rs 1 crore in next four to five. All these policies should be in form of term plans.

Planning for financial goals

Home buying: Since they do not need a house for staying, they should defer this goal for another decade. This is keeping in mind the fact that there is lack of funds currently and overall portfolio will get skewed in favour of illiquid, immovable, indivisible asset if they purchase a new house now.

Daughter’s education: They should invest Rs 2,500 every month in recurring deposit.

Daughter’s marriage: The should start an SIP of Rs 3,000 in and equity based mutual fund and another Rs 2,000 in a gold fund and increase the amount by 15% every year.

Retirement planning: Invest Rs 7,500 each in three equity mutual fund schemes: Large-cap fund, mid-small cap fund and an international equity fund every month — increase the amount by 10% every year.

Foreign travel: Set aside funds from regular income to fund the trip.

Luxury Car: Defer this goal for a few years.

Planners Eye

Young couples with clear goals, humble expenses, high savings rate and living with parents. For them these are golden wealth creation years. If they stay focused like this for another 5/7 years, they will be on massive wealth creation trajectory. Usually it just requires about a decade of frugality in entire career to create wealth. If that is done during initial period of life it is more beneficial.

Source : http://goo.gl/d3PWVT

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