I am 39 now (working private sector) my wife 34 (housewife) & no kids yet. Monthly income: 1,80,000/-. Parents & wife dependent.
Wife had/have spine (disc bulge and FIS generated) issue. Had lot of expenditures earlier in medical but now doing better. Parents ailing so helping in need sometimes.
(Company only provides general health insurance for all)
Market Debts (Remaining total 56,49,179/-)
1) House loan remaining ~43L for 25years.
2) Car loan, remaining ~8.5L for 6 years.
3) Personal loan, remaining ~4L for 2 years.
Monthly EMI’s: (per month expenditure approx 1L)
EMI 1 - 10k
EMI 2 - 38k
EMI 3 - 20k
MISC - ~30k
Started investing 5k pm in SIP, less idea on markets.
I don’t know what to do, very much messed up and confused on HOW TO INVEST, SAVE FOR FUTURE (including any for kid planning) & RETIRE.
Would highly appreciate for any serious great guidance / assistance please !!
Thanks & Regards.
Ans: Firstly, it's great that you're seeking help to manage your finances. Acknowledging the need for guidance is a vital step towards financial stability. Let's analyze your situation in detail.
You have a monthly income of Rs 1,80,000. Your current expenses, including EMIs, amount to approximately Rs 1,00,000. This leaves you with Rs 80,000 each month to allocate towards savings, investments, and other financial goals. Understanding how to effectively utilize this remaining income is crucial.
Addressing Existing Loans
You have significant debts:
House loan: Rs 43,00,000 for 25 years.
Car loan: Rs 8,50,000 for 6 years.
Personal loan: Rs 4,00,000 for 2 years.
The total outstanding debt is Rs 56,49,179. The monthly EMIs for these loans are Rs 68,000.
House Loan
This is a long-term commitment. Given the lower interest rates on home loans, it might be the least financially pressing. However, any extra payments here could reduce your loan tenure and interest outgo.
Car Loan
Car loans generally have higher interest rates than home loans. It would be prudent to consider paying this off earlier, if possible. However, it depends on your overall financial strategy and the interest rates involved.
Personal Loan
This should be your priority to pay off due to typically high-interest rates. Reducing this burden will free up more of your income for other investments and savings.
Medical and Health Considerations
Your wife has had significant medical expenses due to her spine issues. It's commendable that she is doing better now. The company-provided health insurance is beneficial, but it may not cover all future medical needs, especially given the health conditions within your family.
Recommendation
Consider a separate comprehensive health insurance policy. This would cover any gaps in your company’s insurance and protect your finances from unexpected medical expenses.
Current Investments
You’ve started a SIP of Rs 5,000 per month, which is a good start. SIPs are a disciplined way of investing in mutual funds. However, given your lack of market knowledge, it's crucial to choose the right funds.
SIP and Market Investments
Mutual funds, especially actively managed ones, can provide better returns than traditional savings methods. They are managed by professionals who make investment decisions on your behalf.
Disadvantages of Index Funds
Index funds, while having lower fees, simply track the market and don’t attempt to outperform it. In volatile markets, they might not provide the best returns. Actively managed funds, on the other hand, aim to outperform the market and are managed by expert fund managers.
Financial Goals
Saving for Future and Retirement
It's essential to have a clear plan for both short-term and long-term goals. You mentioned planning for children and retirement. These goals require substantial financial planning.
Emergency Fund
First, establish an emergency fund. This should cover at least six months of your expenses, including EMIs and medical needs. Given your expenses, an emergency fund of Rs 6,00,000 to Rs 7,00,000 would be prudent. This fund should be kept in a highly liquid form such as a savings account or liquid mutual funds.
Retirement Planning
Given your current age and financial responsibilities, starting early with retirement planning is crucial. Investing in a mix of equity and debt funds can provide growth and stability. Equity funds can offer higher returns, while debt funds add a layer of safety.
Investment Strategies
Diversification
Diversify your investments across different asset classes to minimize risks. Relying solely on one type of investment can be risky. A balanced portfolio includes equities, debt instruments, and other savings schemes.
Avoid Direct Funds
Direct funds require constant monitoring and expertise. Regular funds, managed by certified financial planners, offer professional management and tailored advice, ensuring your investments are aligned with your financial goals.
Systematic Transfer Plan (STP)
STPs can help in transferring money from debt funds to equity funds systematically, balancing your portfolio and minimizing risks.
Managing Expenses and Savings
Your current expenditure is Rs 1,00,000 per month, including EMIs. It is crucial to track your discretionary spending and identify areas where you can save more.
Budgeting
Create a detailed monthly budget. This will help you track expenses and ensure you are saving enough. Tools and apps can make budgeting easier and more effective.
Automate Savings
Automate your savings to ensure you consistently set aside a portion of your income before spending. This discipline will help you grow your savings systematically.
Planning for Children
Planning for children involves preparing for education, healthcare, and other future expenses.
Education Fund
Start an education fund early. Investing in equity mutual funds can help build a substantial corpus by the time your child reaches college age.
Regular Financial Review
Regularly review your financial plan. Life circumstances and financial markets change, and your financial plan should be flexible enough to adapt. Working with a certified financial planner can help you stay on track and make necessary adjustments.
Final Insights
Financial planning is a continuous process. It requires careful analysis and regular reviews. By prioritizing debt repayment, creating an emergency fund, and investing wisely, you can achieve financial stability and secure your future.
Seek professional guidance to make informed decisions and stay committed to your financial goals. Your dedication to improving your financial situation is commendable.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in