Have financial plan in place to ensure smooth ride

In our 200th Money Makeover, we discuss the financial life of Rahul Ganu, 29, who lives in Mumbai with his wife Priyanka and his parents. Rahul is an engineer and works for the private sector. After seeing first-hand how a relative's accident resulted in Rs 10 lakh expenses in the long term, Rahul believes that there should be "enough wealth to deal with turbulences" in life.
What are they saving for?
The couple wishes to purchase a house worth Rs 1.50 crore after five years. They also wish to support Rahul's parents. Once they have children, they want to create a corpus of Rs 25 lakh for education purposes and another Rs 25 lakh for marriage. They also want to purchase a car and go on a foreign trip.
These costs will be revised on the basis of inflation.
Where are they today?
Cash flow: The couple's annual gross inflow is Rs 6.50 lakh. Against this, total outflow is Rs 3.25 lakh. The total outflow is on routine expenses, taxes and contribution towards provident fund.
Net worth: The couple's total assets are worth Rs 15.33 lakh in the form of liquid assets and other financial instruments.
Contingency fund: The family's balance in savings bank accounts, FDs and liquid funds is Rs 10.58 lakh. Their mandatory monthly expenses are Rs 21,000. So they have approximately 51 months' reserve.
Health & life insurance: Rahul has a health cover of Rs 2 lakh provided by his employer. He has life insurance worth Rs 50 lakh by way of a term plan.
Savings & investments: The couple's balance in savings bank accounts amount to Rs 6.50 lakh, FDs Rs 1.78 lakh and liquid funds Rs. 2.30 lakh. Their balance in EPF is Rs. 3.40 lakh, equity mutual funds Rs 80,000 and FDs/bonds Rs 55,000.
Fiscal analysis
The couple is saving 61% of their total income, which is a good savings ratio. They have a very large sum of money lying idle in savings bank and liquid funds. Their health insurance needs enhancement. Considering an expansion in the family over a period of time, Rahul's life insurance cover also needs enhancement.
The way ahead
Contingency fund: The couple should maintain a contingency fund of Rs 60,000. Out of this, Rs 10,000 must be held as cash at home and the balance in a fixed deposit linked to a savings bank account. The excess funds must be invested to provide for other goals.
Health & life cover: The health cover must be enhanced to Rs 5 lakh each for Rahul and his wife. This is over and above the cover provided by his employer. Also, he should enhance his life cover by way of a term plan to Rs 2 crore over the next three-five years, considering that he is the main earning member of the family.
Planning for financial goals
Home purchase: The couple can park the excess funds in their savings account, bank FDs and liquid funds into a mutual fund scheme that has about 60% equity and the rest in debt. Also, they can start an SIP in a similar kind of fund. They can also opt for a dedicated equity fund and debt fund in the same ratio. A few months prior to the funds' requirement for down-payment of a house, the couple can shift the funds to an FD. At the time of the final purchase, they can take a home loan for the balance payment.
Parental responsibility: The couple can fund support to Rahul's parents from routine income.
Children's education and marriage: The couple can invest in SIPs of equity-based mutual funds and gold funds to create a corpus for education and marriage after they have bought a home.
Retirement planning: For the time being, the couple should continue the contribution to the EPF and also start a PPF. Within five years, they can start an SIP in a mid-/small-cap equity fund for creating a retirement corpus.
To be featured in this fortnightly column, write to moneymakeover@timesgroup.com
In a journey spanning over eight and a half years, we have featured 200 families. These families reside in different parts of the country, are from various strata of income, age group and occupation. The effort of this column is to guide each one of them on their journey to financial freedom. Instead of giving them hot money-making tips, we have tried guiding their thought process so that they channelize their financial resources towards their financial goals. This latest Money Makeover looks at Rahul and Priyanka who began their journey recently. It is always prudent to have an appropriate plan at the beginning of our journey to have a smooth ride. With focus on financial goals and proper channelization of resources, both will lead a healthy financial life.