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Dr Nandini and her family were living peacefully and were in control of their finances. An accident to the family has thrown up new challenges and that was precisely why they wanted to have professional guidance, by approaching a Financial Advisor.
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Dr Naveen and Dr Nandini have been married for 12 years and have a son aged 9. During one of their travels last year, the family met with an accident. Dr Naveen is yet to recover and may not be in a position to carry out his professional practice in the near future. A family that had two earning members is now facing a situation with a single earning member that has increased the responsibility on Dr Nandini. With responsibilities, come, the burden of managing a patient too, though it is for the short term.
Dr Nandini earns a monthly consultancy income of ₹2.65 lakh from a corporate hospital. She was practising in her own clinic and contemplating shutting the clinic. The couple is asset-rich but their financial position is limited by liquidity issues and liabilities. Dr Nandini is keen to close the loans at the earliest.
As they did not have enough liquid cash, Nandini sold a plot recently for ₹50 lakh and used the funds to manage hospital expenses and paid money back to her relative who helped during the crisis. They had paid ₹10 lakh as advance for booking a property in Chennai towards their plan to construct a hospital. As the plan has been postponed, she has asked for refund of the amount, which is expected any moment.
Review and recommendations
Based on the discussion with the doctor couple, the following recommendations were made.
1. It was suggested that Dr Nandini increase her family health cover with super top-up policy for sum insured of ₹1 crore. They have a base cover of ₹10 lakh with multiplier benefits, which was very helpful towards Dr Naveen’s hospitalisation expenses last year.
2. They do not have any fixed deposits or liquid investments. It was suggested to invest the booking advance refund in a fixed deposit. This would be mapped for emergency needs.
3. Cash available with Dr Naveen’s savings account would be used towards his home care expenses and plot loans for the next one year.
4. It was also suggested to sell the land in Mysore and close the plot loan. This will ease the burden on the cash flow. The Mysore land was bought for investment purposes and in Dr Naveen’s name. As the land is in a gated community in an upcoming area, they will be able to sell it at minimal loss to capital invested. The sale proceeds can partially be used to foreclose the housing loan.
5. Once the liability burden gets reduced, Dr Nandini may be freed from additional work and concentrate on the family well-being, with only corporate hospital practice.
6. Both Dr Naveen and Dr Nandini have opted for ₹2 crore term insurance individually. It was advised to continue paying the premium for the same. No additional insurance cover was recommended at this point of time.
7. The couple had opted for eight conventional insurance policies. It was suggested to make three policies as paid up where Dr Naveen was the life assured. Other policies were to be surrendered. This exercise frees up ₹3 lakh cash outflow towards premium payment. The proceeds from the surrender of the insurance policies can be added to emergency fund.
8. It was advised to invest ₹25,000 per month towards their son’s education expenses in a mutual fund suitable for their current risk profile and the time horizon. This amount may be increased post easing the burden of the liabilities.
9. It was also advised to move the month-end surplus to liquid fund or to a separate bank account to help manage the cash flow effectively.
10. Dr Nandini wanted to be prepared for unforeseen emergencies (like the one the family is going through) and for their own retirement. She wanted to prepare herself and the family, in case a situation arises where she would be incapable of practising her profession. A suitable plan was drafted with the help of a lawyer to manage their assets. Her parents and in-laws were very helpful in overcoming the difficult period by extending their full support. She is thankful to them, however she wants to bring more stability to her finances.
11. She was advised to decide on managing the rental property and the plot in Coimbatore. In due course, she may keep a home for the family and focus on building her financial assets. We advised her to review their goals and think of what they wanted to achieve when Dr Naveen was active.
12. Once Dr Naveen recovers, they may need to have a relook at their finances together, including their goals and plan the future course of action. They may also increase their savings and investments in financial assets towards retirement down the line.
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Many a time, when everything is falling into place in our lives, we hardly give a thought to some of the basics of personal finance — such as asset allocation, diversification and not taking too much of leverage. It is always better to have a mix of assets in the proportion that suits one’s needs to ensure we are geared up to face the challenges life keeps throwing up at unexpected times. A sound practice for a professional, a high paying job or a good income-generating business may not be sufficient if we do not stick to the fundamentals of personal finance. Build wealth that can protect you when you are not in a position to work, keeping a broad check on your expenses and leverage.
The author is a SEBI registered Investment Adviser and can be reached at www.financialplanners.co.in
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