I am 32 years old and my wife is 26. We are expecting our first child next year. My monthly income is Rs 55, 000. I have no pension benefits. My monthly EPF contribution is Rs 6,000 and my employer matches it. I have accumulated Rs 5.5 lakh in EPF. I live in company leased housing quarters.

Last year, I bought a plot for Rs 10 lakh by taking a personal loan of Rs 6 lakh at 14.25 per cent. The plot’s current value is Rs 15 lakh. I am planning to buy one more plot next year after the closure of this loan.

I have four insurance policies with a sum insured of Rs 18.95 lakh which entails annual premium payment of Rs 75,682. I invest Rs 1,200 in mutual funds through SIP route and its current value is Rs 1.05 lakh. I have unlimited health cover for my immediate family. I have taken Rs 2 lakh floater cover for my father and mother.

I wish to buy a car for Rs 11 lakh within 5-7 years.

For my child’s education, I need Rs 15 lakh after 19 years and for marriage Rs 25 lakh.

I wish to buy a two bedroom flat for Rs 35 lakh after 20 years.

I wish to create a corpus to meet monthly expenses of Rs 15,000.

Shall I discontinue my insurance policies?

— Naveen

You need to have right asset allocation to reach all your financial goals.

In your portfolio, real estate accounts for 62 per cent and debt 33 per cent. If you buy one more plot your asset allocation will be skewed.

Invest in the ratio 60:20:10:10 in favour of equity, debt, real estate and gold respectively. Since you wish to buy a house after 20 years, buy plot instead.

Car

Plan for a budget of Rs 5 lakh. After five years, at 7 per cent inflation, the cost will be Rs 7 lakh. To reach the goal save Rs 8,570 for the next 60 months and it should earn 12 per cent return (same returns assumed for all goals).

Education

The present cost of Rs 15 lakh will be Rs 47 lakh after 17 years. Save monthly, a sum of Rs 7,150 to reach the target. Invest for marriage after you generate higher surplus.

Retirement

The present annual living cost of Rs 1.8 lakh will be Rs 13.7 lakh. You will need Rs 2.4 crore at retirement. Your current and future PF contributions (assuming 5 per cent increase) will give you Rs 1.27 crore. To meet the shortfall, save Rs 3,450 for the next 360 months.

Home

The sum of Rs 35 lakh, after 20 years, would become Rs 1.35 crore. After you trade your plot for buying a house, you may still need Rs 65 lakh. This after factoring the proceeds of your insurance policies. Save monthly, a sum of Rs 7,500 for the next 19 years.

(The author is CEO, SPP Wealth and Financial Planners. He can be reached at suresh@myassetsconsolidation.com

(This article was published on August 4, 2012)
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