Don’t get swayed by markets, economy, make investments keeping financial goals in mind

Uday Desai, 42, lives in Mumbai with his wife Yogita (37) and parents. The couple works in the private sector. Their son Aryaman is five years old.
What’s the couple saving for?
They wish to buy a bigger house worth Rs 1 crore immediately. Rs 1 lakh annually for son’s education and Rs 6 lakh for son’s marriage after 18 years. They may have to support their parents later.To maintain their lifestyle after retirement, they want a corpus of Rs 2 crore. Apart from these goals, they wish to own a holiday home, buy a luxury car and go on foreign holiday. The costs will revised based on inflation.
Where are they today?
Cash flow: The total annual inflow including income and other benefits from all sources is Rs 26.9 lakh against an annual outflow of Rs 15.28 lakh. The outflow consists of routine household expenses, insurance premium, rental expenses, EMI and tax.
Net worth:
The total assets are worth Rs 1.62 crore, which includes cash and near-cash assets of approximately Rs 11 lakh, invested assets worth Rs 47.90 lakh and assets for self consumption worth 1.04 crore. There is an outstanding liability of Rs 8.5 lakh.
Contingency fund:
The balance in savings bank account is Rs 10 lakh and a fixed deposit of Rs 1 lakh against the mandatory monthly expenses of Rs 1.17 lakh. This is approximately 9.4 months’ reserve.
Health & life insurance:
The family has a health floater policy of Rs 2.5 lakh. Uday has a life insurance of Rs 19.55 lakh while Yogita has a Rs 29-lakh cover.
Savings & investment:
The balance in savings bank account and fixed deposit is Rs 11 lakh. Invested assets include equity mutual funds worth Rs 50,000, EPF of Rs 40,000 and real estate worth Rs 47.5 lakh.
Fiscal analysis
There is a decent inflow. The savings rate of 45% is reasonably good. The contingency fund is more than required with excess funds in savings accounts. Health and life insurance should be enhanced. As there is a sufficient inflow, they should pay off their loan aggressively before buying a new house.
The way ahead
Contingency fund:
The could should maintain a contingency reserve of Rs 3.5 lakh out of which Rs 30,000 should be held as cash in hand and the balance in an FD linked to a savings bank account. Additional funds may be used to pay back home loan.
Health & life cover:
Over time, the Desais can increase the family floater health cover to Rs 10 lakh. Both Uday and Yogita need to have a life cover of Rs 50 lakh each and, as and when their income increases, they can enhance it.
Planning for financial goals
Home buying:
For buying a house worth Rs 1 crore, they should liquidate one of their existing real estate and use the proceeds for down payment. For the residual amount, they should opt for a loan.
Son’s education:
They must start investing Rs 8,000 every month in an equity-oriented mutual fund and increase the amount by 10% every year.
Son’s marriage:
They should start an SIP of Rs 3,000 in a large-cap fund and gold fund to build a corpus.
Parental responsibility:
Their current income is more than sufficient to support them. However as a precaution, they should park Rs 5 lakh in an FD and earmark it for the parents’ needs.
Retirement planning:
They should earmark existing equity MF portfolio, additional real estate and balances in EPF/PPF for the retirement corpus.
Foreign travel, holiday home and car:
Plan for these goals later in life.
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