Family Finance: Why Sharmas need to put off goal of buying a car

Aditya Sharma, 31, is employed and gets a monthly salary of Rs 54,000, while his wife, Anvesha, 26, is a homemaker. The couple does not have any children and stays in a rented house in Pune. They have, however, booked a house with the payment of Rs 1 lakh. After a year, they will make a down payment of Rs 3 lakh and start with the home loan EMI of Rs 30,000. Besides the house, their primary focus is building an emergency corpus, starting saving for their retirement, and buying a car. However, Financial Planner Pankaaj Maalde suggests they put off buying a car till a rise in income. Their debt portfolio comprises Rs 3 lakh in fixed deposit, Rs 50,000 in a post office scheme and Rs 10,000 in the EPF. As for equity, they have Rs 50,000 in equity funds.


Cash flow


The couple can start by building the emergency fund of Rs 2.91 lakh, which is equal to six months’ expenses, by allocating their post office scheme corpus of Rs 50,000. They will also have to start an SIP of Rs 30,000 from their surplus in an ultra short-duration fund.

Next, they want to buy a house worth Rs 39 lakh, of which they have paid Rs 1 lakh as booking amount. In a year’s time, they will need to make a down payment of Rs 3 lakh, which can be done by assigning their fixed deposit of the same amount. For the remaining amount, they will have to take a home loan and the EMI, which will amount to nearly Rs 30,000, can be sourced from the surplus after the contingency corpus has been built.

How to invest for goals


* Investment for this goal is till the home loan EMI starts in 2020.
** Investment of Rs 10,000 is needed, but due to lack of surplus, Sharma can start with Rs 5,000.
Annual return assumed to be 12% for equity and 7% for debt. Inflation assumed to be 7%.

Finally, for retirement, the couple has estimated a need of Rs 3.4 crore in 29 years. For this goal, they can allocate their EPF corpus of Rs 10,000 and mutual fund corpus of Rs 50,000. These will yield nearly Rs 34 lakh in the specified period. For the remaining amount, they will have to start an SIP of Rs 10,000 in a diversified equity fund. However, due to lack of surplus, they will have to start with Rs 5,000 and increase the amount after a rise in salary.

Insurance portfolio


Premiums are indicative and could vary for different insurers.

For life insurance, Aditya has one traditional plan of Rs 2 lakh, but Maalde suggests he surrender it and buy a term plan of Rs 1 crore, which will cost Rs 833 a month. The family also has a family floater plan Rs 3 lakh, and Maalde suggests they increase the cover to Rs 10 lakh, which will cost them Rs 1,167 a month. In addition to these, Aditya should buy a Rs 25 lakh accident disability cover, which will come for a monthly premium of Rs 250 only.

(Financial plan by Pankaaj Maalde, Certified Financial Planner)

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