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I'm 29, Earning 2.3 Lakh, Yet No Savings: How Can I Manage Finances Better?

Ramalingam Kalirajan |7290 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jul 15, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Question by Yasaswini on Jul 03, 2024Hindi

Hi, I am 29 year old and my husband is 35 year old. We have 1.5 year old kid. We both are working and earn around 2.3 lakh per month. We have a house loan and personal loan emi deducting 90,000 per month Maid & nannu expenses around 30k per month. House expenses including maintenance around 30k per month. Parents we send -20,000 per month I invest in ppf 50,000 per year Nps - 50,000 per year My husband lic - 40,000 per year SSY for daughter - 50,000 per year Gold scheme in jewellery - 1000 per month. We have hand loans around - 4.5 lakh We don't eat outside or travel that much and don't spend money on unwanted things. We stay in metro politan city. Even though we spend carefully, by the end of month we won't have a penny in account. We want to manage our finances in better way so that we can clear our home loan and personal loans faster and also save for our kid's future and our retirement.

Ans: It's commendable that you're working diligently to manage your finances. Living in a metropolitan city can be expensive, and managing a family adds to the financial pressure. Your income is substantial, but with your expenses and loans, it's crucial to plan effectively to meet your goals. Let’s analyze your current financial situation and explore strategies to improve it.

Income and Expenses Overview
You and your husband earn Rs. 2.3 lakhs per month, which is a significant amount. However, your monthly commitments take up a large portion of this income:

House and personal loan EMIs: Rs. 90,000
Maid and nanny expenses: Rs. 30,000
House expenses including maintenance: Rs. 30,000
Support to parents: Rs. 20,000
This totals Rs. 1.7 lakhs per month, leaving Rs. 60,000 for other expenses and savings. However, you also have various annual investments:

PPF: Rs. 50,000
NPS: Rs. 50,000
Husband’s LIC: Rs. 40,000
SSY for daughter: Rs. 50,000
Gold scheme: Rs. 12,000 per year
Analyzing Your Cash Flow
Your careful spending habits are commendable. However, it's clear that your current expenses and investments leave little room for savings or emergency funds. Let's explore ways to optimize your cash flow.

Loan Repayment Strategy
Clearing your loans faster will significantly improve your financial situation. Here are some strategies:

Prioritize High-Interest Loans
Focus on repaying high-interest loans first, such as personal loans. This will reduce the overall interest burden and free up cash flow sooner.

Consider Loan Consolidation
If possible, consolidate your personal loans into one with a lower interest rate. This can make repayment easier and reduce your monthly outgo.

Optimizing Investments
Your investments in PPF, NPS, and SSY are good for long-term growth. However, let’s examine if there’s a better way to manage these:

Review LIC Policies
LIC policies often have lower returns compared to mutual funds. Consider consulting a Certified Financial Planner to evaluate if it makes sense to surrender the LIC policy and invest the proceeds into mutual funds for better growth.

Maximize Tax Benefits
Ensure you are maximizing tax benefits under sections 80C, 80D, and 80CCD. This will reduce your taxable income and increase your net savings.

Creating an Emergency Fund
Having an emergency fund is crucial. Aim to build a fund equivalent to at least 6 months of your expenses. This can be done gradually by setting aside a small amount each month.

Budgeting and Monitoring
A detailed budget can help you track expenses and identify areas to save. Here’s a simple budgeting approach:

Categorize Expenses
Break down your expenses into categories such as household, child care, loans, and discretionary spending. This will help you see where your money goes and identify areas to cut costs.

Use Budgeting Tools
Consider using budgeting tools or apps that can help you monitor your spending in real-time and stay on track.

Saving for Your Child’s Future
Your investment in SSY is a good start. Here are some additional strategies to secure your child’s future:

Education Fund
Start a dedicated education fund for your child. Consider investing in equity mutual funds for higher long-term returns. This can be done through monthly SIPs.

Child Insurance Plans
While child insurance plans are an option, they often come with high costs and lower returns. Instead, consider a combination of term insurance and mutual fund investments.

Planning for Retirement
Ensuring a comfortable retirement is crucial. Here’s how you can plan better:

Increase Retirement Contributions
If possible, increase contributions to your NPS or other retirement plans. This will help build a larger corpus over time.

Diversify Investments
Ensure your retirement portfolio is well-diversified across different asset classes, such as equities, debt, and real estate (if already owned).

Strategies for Better Financial Management
Automate Savings
Set up automatic transfers to your savings and investment accounts. This ensures you save before spending and helps in consistent investment.

Regularly Review Financial Goals
Review your financial goals and investment portfolio regularly. Adjust your strategy based on changes in income, expenses, or life circumstances.

Seek Professional Advice
Consider consulting a Certified Financial Planner. They can provide personalized advice, help optimize your investments, and ensure you stay on track to meet your goals.

Increasing Income Streams
If feasible, look into ways to increase your income. This could be through side projects, freelance work, or investing in skills that could lead to a higher-paying job.

Reducing Unnecessary Expenses
While you already spend carefully, periodically reviewing your expenses can help identify areas to save even more. Consider:

Re-evaluating Subscriptions
Cancel unused subscriptions and memberships.

Energy Efficiency
Adopt energy-efficient practices to reduce utility bills.

Final Insights
Managing finances effectively requires a balance between earning, spending, and saving. By prioritizing loan repayment, optimizing investments, creating an emergency fund, and planning for your child’s future and retirement, you can achieve financial stability.

Your disciplined approach and commitment to not spending on unnecessary things are commendable. With some adjustments and a clear strategy, you can improve your financial health and achieve your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.

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