Family finance: Santosh needs to reduce money goal values

G. Santosh is a government employee and lives with his wife, a tutor, and two children, aged, 19 and 14 years, in Chennai. They get a combined salary of Rs.72,000 a month, besides a pension of Rs.22,500 as Santosh is a defence services retiree. He also gets a rental income of Rs.8,667 a month from a Rs.42 lakh house, for which he has taken a loan of Rs.16.15 lakh and pays an EMI of Rs.30,000. He has another house worth Rs.15 lakh and a Rs.3 lakh plot of land. His goals include building an emergency corpus, saving for his children’s higher education and weddings, and retirement.

According to Fincart, lack of investible surplus, insufficient assets and a very short time horizon means Santosh will not be able to reach his goals if he does not reduce the goal values. He should also repay the home loan with his insurance plan, which matures next year, and one of the mutual funds. This will free up Rs.30,000.

For now, he can start by building an emergency corpus of Rs.2.18 lakh, which is equal to his three months’ expenses, by allocating a part of his cash. This amount should be invested in a low duration fund. For his kids’ higher education, Santosh will need Rs.24.2 lakh and Rs.29.2 lakh, in two and four years, respectively. For the former, he can allocate a part of his equity fund corpus and house worth Rs.15 lakh. For the latter, he can assign the plot of land, stocks, one mutual fund, and remaining cash.

He will also have to start an SIP of Rs.39,819 in debt funds from next year. For children’s weddings in seven and 11 years, he will need Rs.37.5 lakh and Rs.60.7 lakh, but due to lack of surplus, he is advised to bring down these goal values. For retirement, he will need Rs.1.59 crore in eight years. He can assign his EPF, PPF and NPS corpus, and also start an SIP of Rs.68,855 in equity funds. He can start with Rs.12,000 for now and increase it with a rise in income. He will also continue to get pension for life.

For life insurance, Santosh has two term plans of Rs.1.04 crore, and a traditional plan of Rs.5 lakh. Though he needs a higher cover, cash constraints mean he will not be able to pay the premium. Since he only has eight years to retire, Fincart suggests he continue with the existing covers and not buy any more. For health, he has a Rs.4 lakh cover and Rs.24 lakh accidental disability plans for him and his wife. As his medical expenses will be covered by government even after retirement, he does not need any more health cover.

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