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How to plan my finances and future goals

My name is Krishan working in export firm and my age is 38 years. And having one daughter, wife is house wife. My assets are follows 1) My salary package as on date: 350000 pa, 2) EPF balance as on date 4 lac, 3) Flexi Fixed Account in all Allahabad bank and account balance About 2 lac, 4) LIC money back policy SA 5 lac out of which I have paid 8 premium of Rs. 18500 policy tenure 20 years. I received money back every five year About Rs. 50000, which I make the fixed deposit for next 3 premium Still I don't have any financial planning but now I am aware of these things and financial goals are as follows 1) Retirement planning: my expense as on today is Rs. 20000 I want to retire in 55 year of age, 2) Daughter Marriage: 8 year old and expected to marry 23 years of age and need 10 lac as on today exp, 3) Daughter Education 8 lac as on today exp, 4) every year I need 20,000 for vacations I can invest 3000 pm in moderate risk. Can I fulfil my goals else how much Amount I need to complete my goals I can increase this SIP every year 10% Please suggest?

Oct 25, 2016 by Krishan Bhardwaj, New Delhi  |   Financial Planning

Based on the information provided you, the investment made by you is primarily in fixed deposit and life insurance policy. You have Rs 2 lakhs invested in FD. The current FD interest rate is around 7%. Assuming an average interest rate of 7% over the next 15 years, your FD value will be Rs 5.5 lakhs. The maturity amount of money back policy is usually on the lower side, because of the interim cash flows (money back) received from the policies. You mentioned in your query that, you want to spend Rs 8 lakhs on your daughter’s education in about 10 years time (your daughter is 8 years old). Assuming education cost inflation of 8% (education cost inflation is amongst the highest in the urban consumption basket), your daughter’s college education in about 10 years from today will cost you Rs 17 lakhs. Your daughter’s higher education and wedding will cost you around Rs 38 lakhs. Let us now assess how much you can get from a monthly SIP of Rs 3000 (with 10% annual increment).

You mentioned you are 38 and that you intend to retire at 55. Therefore, your investment period is 17 years. You also mentioned that you want to take moderate risks. Balanced funds are suitable for moderate risk profiles. In the last 15 years, monthly SIP of Rs 3000 (with 10% annual increment) in top balanced funds would have yielded a corpus of Rs 35 – 40 lakhs. Therefore, with a Rs 3000 monthly SIP (factoring in 10% annual increment), you can, at best, meet your daughter’s education and wedding goals, but you will have hardly any money in your retirement corpus, which will enable you to be financially independent. You need to save more for your retirement. To calculate how much extra you have to save, please use our Retirement Planning Calculator.

Further please note that, since your wife is a home-maker and your child is very young, a life insurance cover (sum assured) of Rs 5 lakhs is not sufficient in the event of an untimely death, since your family’s monthly expense is Rs 20,000 per month. Life insurance is a critical need for all families. You should buy more life insurance cover. Rule of thumb says, your life cover (SA) should be 10 times of your annual salary. If you have difficulty saving more from your current income, you can consider surrendering your existing life insurance money back policy and buy a term policy with sufficient cover. You can check term plan premiums by going to policybazaar.com and entering details like sum assured, date of birth etc. Based on premium rates of some popular term plans you can get a term policy of Rs 35 lakhs sum assured, at a cost which can be 50 – 70% less than your current life insurance premium. You can use the saving in your life insurance premiums to additional SIPs, that can help you meet your retirement goals as well. You may also discuss your investment and insurance goals a financial advisor, and make decisions accordingly.

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