Parasu, aged 48, and his wife, 43, wanted to plan their personal finance in a systematic way to ensure that their simple goals are reached with certainty.

Parasu works in an IT firm at mid-managerial level while Kavita is employed with a consulting firm. They have two sons, aged 19 and 15. The elder one is doing his undergraduate course in commerce and plans to pursue CA from next year. The younger son, who is in Std 10, may get into the commerce stream following his brother. The family is expected to cover their education expenses from the regular cash flow.

Parasu recently got a salary hike of ₹15,000 per month, and Kavita a hike of ₹12,000 per month. This increase in salary made them think of approaching a professional to save towards their retirement.

Goals for the family

1.      Their primary goal is to save for retirement to lead the same lifestyle and not depend on their children financially

2.      To close housing loan before retirement

3.      Opting for suitable health insurance as they depend on employer-provided health cover currently

Parasu has been investing in equity mutual funds systematically for the last few years along with equal amount in PPF. He is disciplined in managing both his committed savings and expenses. The couple are not inclined to risk their capital and plan to build a corpus towards retirement in a balanced way. Their risk profiles were assessed to be ‘moderate’.

Review and recommendations

1.      Fixed deposits to be retained towards emergency fund

2.      Kavita was advised to increase her PF deduction through voluntary PF contribution. The revised contribution would stand at ₹12,500, a month. This will help them to accumulate ₹1.35 crore when Parasu retires at 60

3.      Continuing Parasu’s contribution in equity MF and investing ₹1.5 lakh in PPF every year for the next 12 years, they can build a corpus of ₹1.42 crore.

4.      As they maintain a moderate lifestyle and would be comfortable with retirement expenses of ₹40,000 at current cost, they need to build ₹2.05 crore at an expected inflation of 5 per cent and ₹2.71 crore at an expected inflation of 6 per cent per annum. At present the current savings can help them reach this goal comfortably. Post retirement life is planned for 40 years.

5.      They moved to a new house a year-and-a-half ago. The housing loan has a balance tenure of ten-and-a-half years and at current interest rate of 9 per cent, the total interest cost would be ₹32.68 lakh. By foreclosing ₹2.64 lakh every year, they can reduce the tenure to seven years and total interest cost can be saved up to ₹24.26 lakh.

6.      They were also advised to save ₹5,000 towards any medium-term goals such as children’s marriage and ₹5,000 towards building additional wealth to address future goals post retirement, if any

7.      They were also advised to opt for ₹5 lakh health cover and a super top-up plan for ₹25 lakh. This needs to be reviewed once in three years

8.      They are facing liquidity and legal issues in selling the land parcel. Once that gets resolved they would convert the land to other asset class for easy liquidity

9.      The low-yielding conventional life insurance policies bought over a period of time may mature in the next 5-10 years. The maturity proceeds will be used to buy a car, and other requirements, over the years. They were advised to opt for term insurance for ₹50 lakh each.

10.  Once the education expenses are met, they can use the surplus to have a comfortable life style and additional savings are recommended towards the health corpus

The Parasu-Kavita family is maintaining a moderate lifestyle to build their assets with limited income. Disciplined savings and investments with simple products help them reach their goals. Both partners align in many financial decisions, which is key in building the assets with focus. They choose not to enhance their lifestyle with every increase in income but increase savings and investments in simple products. Building assets does not require a high level of knowledge in finance. Discipline and patience, along with clarity in goals, help in the long run. Simple but difficult to follow in this world of too much information.

The writer, Co-founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI