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Implementation and regular review key to successful Financial Planning

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Implementation and regular review key to successful Financial Planning

 

 


When it comes to planning finances, each family has its own unique problems. While some may face a cash crunch, others don't know what to do with their cash surplus. The Sangoi family belongs to the latter category. Parin (46) and Charmi (42), based in Mumbai, are working with a foreign firm. The couple has a daughter, Nehal (16) and a son, Kush (12). Parin is in the high-income bracket, can save 1/3rd of his monthly income and these savings can be properly channelized into investments to meet the family's financial goals.

The present situation

Their take-home monthly salary is Rs 1.99 lakh. Their monthly household expenses are Rs 71,000, another Rs 26,000 goes towards monthly insurance premium, and home loan EMI is Rs 51,000. Their monthly cash surplus is Rs 51,000.

The goals

For the Sangois, the financial goals are Nahal and Kush's education (between 7 and 10 years from now) and their marriage (10 and 14 years), a vacation (14 years), donation to NGO (14 years) and retirement (11 years). The total corpus they need for all these add up to about Rs 5.1 crore.

The solution

Parin has an individual health cover of Rs 8 lakh and a family floater of Rs 3 lakh. He also has a personal accident cover of Rs 90 lakh and Rs 10 lakh for his wife. In addition, Parin also has a critical illness cover of Rs 3 lakh.


Before the Sangois start investing for their goals, based on the human life value concept, Parin must get adequate term cover of Rs 1.57 crore for himself and Rs 15 lakh for Charmi. They were advised to discontinue the family floater policy because of the high premium they were paying. Instead, they were advised to opt for individual health covers of Rs 5 lakh each for Parin and Charmi, and Rs 3 lakh each for the children. Parin was advised to reduce his personal accident cover to Rs 50 lakh and get a critical cover of Rs 10 lakh. Since they had spent a good amount on the interiors of their house, they were advised to get a comprehensive content householder insurance. Parin also had Rs 4.21 lakh in sweep-in fixed deposits to take care of unexpected expenses, which was sufficient.


Parin's top priority is to fund the children's education. For Nehal's education, he will need Rs 20.46 lakh in 7 years, for which their stocks, mutual funds and insurance are likely to grow to Rs 10.36 lakh. For the balance, he has to invest Rs 8,500 per month through systematic investment plans (SIPs). For Kush's education, he will require Rs 27.23 lakh in 10 years, for which his gratuity and the child plan would together give about Rs 18.92 lakh. For the balance, they would need to invest Rs 4,300 per month.


The Sangois also plan to build a Rs 39.34 lakh kitty to fund Nehal's marriage, in 10 years. For this Charmi's gold jewellery has been aligned to grow at 10% annually to Rs 5.18 lakh by then. For the balance, they have to invest Rs 17,500 per month. And for Kush's marriage they will require Rs 51.57 lakh. Parin's gratuity and part of his EPF are likely to grow to Rs 44.14 lakh. For the balance, the target investment is Rs 2,400 per month.


The couple plans for a vacation to cost of Rs 12.89 lakh. For this, Parin has to invest Rs 4,100 per month. The family also has a noble aspiration to donate about Rs 26 lakh to an NGO working to promote girl child. They need to invest Rs 8,200 per month for this for the next 14 years.


Finally, for a comfortable retired life, the couple will need a corpus of Rs 3.31 crore in 11 years. For this Charmi's EPF and gratuity are likely to grow to Rs 21.29 lakh and Parin's balance EPF, superannuation, an endowment plan and secondary property are utilized. There is a marginal shortfall for which Parin needs to do an investment of Rs 6,000 per month.


All the monthly SIPs put together add up to Rs 51,000, which can be taken care of from their monthly surplus. The Sangois have a doable plan in place. All they need to ensure is the implementation part and review it every year to ensure that it's on track.

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