It takes small steps to achieve finance freedom

Chetanya Kakar (54) lives in Delhi and works in the private sector. His wife Madhu works for the Delhi government. The couple has two children — the daughter is married while the son works in the aviation industry.
What are they saving for?
The couple requires Rs 10 lakh for the son’s marriage after a year. They require a corpus of Rs 2 crore for their retirement after five years.The couple also wishes to go on a foreign trip once every two years after retirement.
These costs will be revised based on inflation.
Where are they today?
Cash flow: The couple’s annual gross inflow from all sources is Rs 24 lakh. Their total outflow is Rs 16.40 lakh, which includes routine family expenses, insurance premiums, taxes and regular savings.
Net worth: Their total assets are worth Rs 3.47 crore. These include invested assets and liquid assets amounting to Rs 43 lakh. The assets held for personal consumption are worth Rs 3.04 crore, which comprise a house and a car. They have no liabilities.
Contingency fund: The balance in their savings bank account, along with FDs (less than a year) and cash, amounts to Rs 3.60 lakh. Compared to the mandatory monthly expenses of Rs 58,000, the balance is approximately six months’ reserve.
Health & life insurance: Chetanya and Madhu have an independent health cover of Rs 3 lakh each. They also have a family floater policy of Rs 10 lakh. Chetanya is also covered by his employer for medical expenses and Madhu gets medical benefits provided by the Delhi government. They have no life insurance policy.
Savings & investments: The couple’s balance in savings bank account and FDs (less than a year) is Rs 2.50 lakh and Rs 1 lakh, respectively. Their total invested assets are approximately 11% of the total net worth. The invested assets consist of shares worth Rs 3 lakh, bonds of Rs 3 lakh, equity mutual funds worth Rs 6.50 lakh and balance in provident fund amounts to Rs 27 lakh.
Fiscal analysis
The couple is saving about 30% of their inflow. Their contingency fund is on the higher side. While their health insurance is currently sufficient, the absence of a life cover is a concern. Their allocation across debt and equity is ideal.
The way ahead
Contingency fund: The couple must maintain a contingency fund of Rs 1.80 lakh, out of which Rs 25,000 must be held as cash in hand and the balance in an FD linked to savings bank account. The excess funds must be invested to provide for their goals.
Health & life cover: The couple’s health insurance seems to be adequate. However, there could be a shortfall post retirement. Therefore, they must enhance this with an independent cover to Rs 10 lakh each. Also, purchasing life insurance now would be an expensive proposition. If there are some group insurance options available then these should be explored.
Planning for financial goals
Son’s marriage: The couple wants Rs 10 lakh after a year. This goal can be taken care of with the help of the available surplus, bank FDs and shares.
Foreign travel: Chetanya and Madhu wish to go on a foreign trip once every two years after retirement, for which they would require Rs 2 lakh. Currently, this goal is difficult to achieve. But after their son’s marriage, they can start investing Rs 9,000 monthly in debt-oriented mutual funds. This goal can be achieved with the available surplus.
Retirement: Both should earmark all their investments in EPF/PPF for retirement. Along with that, they should start investing systematically every month in an equity mutual fund and a gold fund from the available surplus. However, the investments should begin after all expenses for son’s marriage are taken care of.