Young must save morefor long-term wealth

MUMBAI: Sajiesh Nair, 35, resides in Bangalore with his wife Remya, 30, and his parents. The couple has two children - daughter Avani, 4, and son Aadit, 1. Sajiesh works in the private sector.
What are they saving for?
A house worth Rs 65 lakh after two years. Rs 1 lakh annually for their children's education. A corpus of Rs 20 lakh for each child's marriage after 20 years.Rs 80,000 annually to support Sajiesh's parents. A retirement corpus that can generate Rs 4 lakh annually. A holiday home.
These costs will be revised based on inflation.
Where are they today?
Cash flow: The couple's total annual inflow from all sources is Rs 25.26 lakh, against an annual outflow of Rs 13.70 lakh. The outflow consists of routine household expenses, insurance premium and house rent.
Net worth: The couple's total assets are worth Rs 88.25 lakh. This includes Rs 9.10 lakh as cash/near cash, Rs 17.46-lakh personal assets and invested assets worth Rs 61.69 lakh. There is no outstanding liability.
Contingency fund: The couple's balance in savings bank account, liquid funds and cash is Rs 9.10 lakh. Against this, mandatory monthly expenses are Rs 97,000. This is approximately 9 months' reserve.
Health & life insurance: There is health cover of Rs 5 lakh for each member of the family. Sajiesh also has a life insurance cover of Rs 1.96 crore.
Savings & investments: The couple's balance in savings bank account is Rs 3 lakh, liquid funds Rs 6 lakh and cash at home Rs 10,000. Invested assets include equity mutual funds worth Rs 6.50 lakh, debt funds and MIPs Rs 8 lakh and bonds worth Rs 40,000. The cash value of life insurance policies is worth Rs 46.79 lakh.
Fiscal analysis
The couple's annual inflow is good. They are also saving about half of their income. The health and life covers are sufficient. Out of Rs 1.96 crore of life cover, Rs 1.50 crore is by way of a term plan - this is very sensible. Since there is no house, a majority of the assets are from an investment perspective. This composition will get modified once they purchase a house.
The way ahead
Contingency fund: The couple can maintain a contingency reserve of Rs 2.90 lakh, out of which Rs 20,000 should be held as cash in hand and the balance in an FD linked to a savings bank account. Any additional amount should be transferred to a bank FD and utilized to fund down-payment for the home.
Health & life cover: The health cover should be enhanced over a period of time as cost of treatment in bigger cities is rising. Also, the life cover can be enhanced at the time of taking a home loan.
Planning for financial goals
Home purchase: The couple can start an SIP in a mutual fund which has 80% debt and 20% equity. At the time of home purchase, they can liquidate the corpus and use it for down-payment. For the remaining amount, they must opt for a home loan.
Children's education: The couple should start investing Rs 5,000 in large-cap equity-oriented mutual funds every month through SIP, and increase the amount by 10% every year.
Children's marriages: The couple can start another SIP of Rs 10,000 in a mid- to small-cap fund and a gold fund to build a corpus.
Parental responsibility: This can be easily achieved from regular income. However, as a precaution against any kind of eventualities in income, the couple should keep aside funds equivalent to one year's requirement in a bank FD.
Retirement planning: The couple should start investing by way of SIPs in equity-oriented mutual funds. Also, contributing regularly to EPF/PPF will help save for this goal.
Holiday home: The couple should consider this after most other goals have been achieved.
To be featured in this fortnightly column, write to moneymakeover@timesgroup.com
Sajiesh and Remya are saving a substantial part of their income. This is possible because of simple living and also because their children are young and, hence, their financial responsibilities are limited. Most couples, during these years of marriage, go into a splurging mode. This results in missing the opportunity to create long-term wealth. For Sajiesh and Remya, the only correction needed is pruning life insurance policies as they're consuming 13% of income without giving optimum returns.