Rramachandran Nair works as a branch manager with a multinational logistics company in Hyderabad. The 33-year-old is married, and has a 4-year-old daughter.
Financial goals
T
he Nairs want to save for their daughter’s education – possibly overseas, in another 12 years. They also expect a significant spending on her marriage, which is 18-20 years down the line. Apart from these, they also need to plan for Mr Nair’s retirement, which he expects in 22 years, when he turns 55.
Where is he now?
Currently, Mr Nair’s has a monthly income — after deducting taxes — of Rs 50,000 a month. He expects some meaningful hikes in the near future. Household expenses are very high — at Rs 45,000 a month. As of now, there is very little by the way of savings in the bank. However, he does own a house in his native place. Apart from these, he also has in place medical insurance worth Rs 3.5 lakh. He has a life insurance policy of Rs 1 lakh.
Recommendations
First of all, Mr Nair’s expenses are playing havoc with his financial planning. His current savings are around Rs 5,000 a month, which is clearly insufficient to meet all his long term goals. Going by the current figures, he will be able to fund his daughters education and marriage, but will have very little left for post retirement. To change that, he needs to curtail his expenses and start saving more rightaway. He needs to scale up his savings to Rs 1 lakh per annum at least. Over the next 22 years, this should increase significantly, because of the power of compounding. Financial discipline is compulsary for him.
He can start investing in a diversified equity mutual fund and tax saving mutual fund schemes. These investments should take care of his long term financial needs.
Secondly, while the health coverage of the family is comfortable, the life cover is clearly insufficient. Partha needs to have a life insurance cover of at least Rs 25-30 lakh to protect his family in case of any mishap. This should work out to Rs 10,000 a year, which is manageable from the current savings as well.
He can also invest in a gold ETF — say Rs 1,000 a month. This will help meet the expenses of his daughter’s marriage in the future.
The above mix of investments would result in about 70 per cent of his savings allocated to equity. Though he is starting late, through better fiscal discipline, Mr Nair can meet most of his long term financial goals.
(L. Ravindran, PhD, is a financial advisor and managing director of Wealthmax Enterprises Management Private Limited.)