Financial Planning . Investing without compromises

A newly married couple, V and A, had approached us with their requirements for financial planning. We helped them manage their goals and goal costs.

This kind of plan required a guidance on likely expenses based purely on their lifestyle and other basic needs. V is 29 and A is 26.

The list of goals finalised for V and A were as follows:

1. Emergency fund to be built immediately: ₹2 lakh

2. Vacation to Bhutan in January 2020: ₹1.2 lakh

3. Car purchase for A in 2020: ₹8 lakh

4. Child-related expenses in 2022: ₹1.5 lakh

5. School admission fund for 2025: ₹2 lakh

6. Passive income of ₹25,000 per month from 2030

7. Long-term wealth creation towards retirement at V’s age of 50: ₹2 crore

8. Business start-up fund for A at her age 30: ₹10 lakh

9. Child’s college education fund: ₹50 lakh

V works in an MNC; his take-home monthly salary is ₹1.35 lakh. Aarti is a fashion designer who does freelancing work for celebrity clients. She earns around ₹75,000 per month on an average post her expenses and taxes.

They did not have any assets except V’s PF amounting to ₹1.65 lakh. They stay in a house gifted by V’s father at the time of their wedding. V owns a car worth ₹10 lakh which he had bought before their marriage. Neither had any financial liabilities.

They wanted to travel every month for the subsequent one or two years and wanted to enjoy life without worrying too much about the expenses incurred toward such things. Their monthly surplus was estimated at ₹1.28 lakh.

They did not have prior experience in investing, but both were from families with more than adequate exposure to various investments. Hence, they wanted to opt for an aggressive investing style for their long-term goals without it affecting their lifestyle and short-term goals.

We recommended the following steps to them.

1. Build ₹2 lakh through a liquid fund over a period of four months.

2. Top-up the liquid fund with ₹1.2 lakh in the next three months for the trip to Bhutan.

3. Car purchase for A can be funded with car loan. She can claim the car-related expenses in her business. She needs to give ₹2 lakh upfront.

4. Child-related expenses can be managed through cash flow as they will stop their monthly travel after two years.

5. Invest ₹4,000 per month in a large-cap fund towards the school admission fund. (The current cost of ₹2 lakh will lead to an expense of ₹3.54 lakh in 2025 at an inflation of 10 per cent.)

6. The current cost of ₹25,000 per month for the passive income will be ₹52,600 in 2030 at an inflation of 7 per cent. They will need to accumulate ₹99.5 lakh to get ₹52,600 per month, without adjusting for inflation post-2030. We advised them to invest ₹36,000 per month in an aggressive mid-cap fund to finance this goal. With an expected return of 14 per cent post taxes, they have a fair chance of meeting this goal in 12 years.

7. We advised them to fund for the child’s education from next year as their investible surplus would be better placed, and meanwhile their emergency, vacation and car purchase needs would have been funded this year. To fund the child’s education expenses at the current cost of ₹50 lakh, they need to build a corpus of ₹3.7 crore when the child would turn 18. We advised them to invest ₹35,000 per month from next year till the target year to reach this corpus at an expected return of 13-14 per cent.

8. Towards long-term wealth creation, we advised them to start the funding from the current year — ₹16,000 per month in an aggressive mid- and small-cap fund.

9. We advised V and A to opt for a ₹2-crore and a ₹1-crore life cover, respectively, through term insurances. We advised them to opt for a 5-lakh health cover through a family floater option.

The writer is an investment advisor registered with SEBI

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