I am 34 years old. My dependents are my wife and a 5-year-old daughter My monthly net salary is Rs 1.30 lakh.

Expenses are Rs 70,000 inclusive of rent, household expenditure and payment of a personal loan EMI of Rs 26,000. This EMI will continue till next July, out of which Rs 8,199 shall end this July.

My monthly credit card bills generally amount to Rs 30,000. The surplus is invested in equity and PPF. My direct equity exposure after a Rs 2 lakh loss is Rs 4 lakh. I opened a PPF account last year and my current balance is Rs 70,000. Monthly contribution in EPF is Rs 9,000 and current outstanding is Rs 5.5 lakh.

I want to buy a house worth Rs 90 lakh next year.

I also wish to accumulate Rs 40 lakh (in present value) for my daughter's education — an engineering degree plus a MBA.

Next year I may take a personal loan of Rs 10 lakh for my sister's marriage.

I will retire at 58. I have no pension in my employment.

What is the corpus to be accumulated?

I have no term insurance or health insurance policy. I can take higher equity exposure.

— Sandeep Mishra

Taking a loan for consumption without due care can be detrimental to asset building. Your monthly expenses are Rs 70,000 and beyond that your credit card spending is Rs 30,000. This shows your lack of discipline in managing outflows.

Before enlarging your debt, take a clear cut view of your long term goals. Having excessive debt can be a big stress factor. True, there may be some family commitments that can't be avoided such as sister's marriage. But henceforth be judicious; use debt as a tool to build assets or to meet only some pressing needs.

Housing loan

With new RBI regulations in place, you are entitled to only 80 per cent of the property value as loan. Registration cost will not be part of the loan. If you want to buy a property for Rs 90 lakh, you should have Rs 18 lakh for down payment. Besides, there is a registration cost of 6 per cent of undivided share to contend with. Going by your current surplus this will be a tall order.

If you borrow Rs 72 lakh for a 20-year period at 10.75 per cent, your EMI will be Rs 73,100.

Down payment will be a issue; either you should wait for a few more years to build your resources or downsize your aspirations.

In such a case withdraw from EPF and dilute your equity investment to buy a flat.

If you let out your house for at least a few years, it will help you deduct the entire interest of Rs 7,50,000 and it will enhance your surplus. This will help you borrow for your sister's marriage.

Education

Saving for this goal hinges on your home loan. If you move to your own house, you can save on rent and this will increase your surplus or let out the new property so that the rental income is more than the current rent. For graduation, if the present value of Rs 25 lakh is inflated at 7 per cent, it will be Rs 56.3 lakh in the next 12 years. To reach this target you need to save monthly, a sum of Rs 17,650 and it should earn 12 per cent return. For MBA you should save a sum of Rs 7,700 for 192 months to reach Rs 44.3 lakh.

Retirement

If the present annual living cost of Rs 3 lakh is inflated at 7 per cent, at 58 you will need Rs 15.2 lakh. To receive such an income post retirement, you should have a corpus of Rs 3 crore and it should earn inflation adjusted return of one per cent.

With your EPF contribution of Rs 9,000 a month and your employer too chipping in with a similar amount, at retirement your balance will be Rs 2.52 crore. This argument holds if your basic pay increases at 5 per cent and the fund earns 8.5 per cent. The balance can be met through your gratuity and with current balance after paying off the home loan. You can construct a portfolio with 70 per cent in equity and 20 per cent (inclusive of the EPF) in debt and 10 per cent in gold. If you don't have enough time to manage direct equity, it is advisable to invest in MFs.

Considering your lifestyle and the future liability, buy a term insurance policy for Rs 2 crore and health insurance for Rs 3 lakh.

> sureshpartha@thehindu.co.in

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