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Ramalingam Kalirajan |7411 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jul 10, 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 Shahnawaz on Jul 04, 2024Hindi

Hi. I am 30y old male earning 25000 monthly. I have a family with 4y old son. I have loan of around 50000+20000+30000? total of 1 lakh. I have managed my EMI regularly but sometimes it missed. How do I clear at earliest & plan for my child future studies? I can't even save any money currently. Please guide

Ans: I understand your situation and appreciate your effort to manage your finances. It's commendable that you are looking to clear your loans and plan for your child's future despite your current challenges. Let's break down your financial situation and create a plan to help you achieve your goals.

Current Financial Snapshot
Age: 30 years old
Monthly Income: Rs 25,000
Family: Wife and 4-year-old son
Loans:
Rs 50,000
Rs 20,000
Rs 30,000
Total Debt: Rs 1 lakh
Savings: Currently unable to save
Assessing Your Financial Priorities
Your main priorities should be:

Clearing your existing loans
Managing your monthly expenses
Starting a savings plan for your child's future education
Building an emergency fund
Loan Repayment Strategy
Clearing your loans is the first step towards financial stability. Let's create a plan to tackle this.

List Your Loans
Loan 1: Rs 50,000
Loan 2: Rs 20,000
Loan 3: Rs 30,000
Prioritize Your Loans
Start by paying off the smallest loan first. This is known as the debt snowball method. It gives you a sense of accomplishment and motivates you to continue.

Loan 2: Rs 20,000
Loan 3: Rs 30,000
Loan 1: Rs 50,000
Creating a Repayment Plan
Allocate a specific amount each month towards loan repayment. Since your income is Rs 25,000, let's see how much you can afford to allocate towards your debts.

Monthly Income: Rs 25,000
Monthly Expenses: Rs 20,000 (assuming essential expenses)
Amount Available for Loan Repayment: Rs 5,000
Focus on paying off Loan 2 first. Once Loan 2 is cleared, move to Loan 3, and finally Loan 1.

Managing Monthly Expenses
Managing your monthly expenses is crucial to ensure you have enough to pay off your loans and save for the future.

Budgeting
Create a monthly budget to track your income and expenses. Identify areas where you can cut back on unnecessary spending.

Income:

Salary: Rs 25,000
Expenses:

Rent: Rs 8,000
Groceries: Rs 4,000
Utilities: Rs 2,000
Transportation: Rs 2,000
Other Essentials: Rs 4,000
Loan Repayment: Rs 5,000
Reducing Expenses
Look for ways to reduce your expenses. Consider the following tips:

Cook at home to save on food costs.
Use public transport or carpool to save on transportation.
Limit discretionary spending such as dining out, entertainment, and shopping.
Starting a Savings Plan for Your Child’s Education
Once you have cleared your loans, start saving for your child's future education.

Opening a Separate Savings Account
Open a separate savings account dedicated to your child's education. This helps in keeping the funds separate and avoiding unnecessary spending.

Systematic Investment Plan (SIP)
Consider starting a SIP in a mutual fund. This allows you to invest small amounts regularly and benefit from the power of compounding. Even a small monthly contribution can grow significantly over time.

Building an Emergency Fund
An emergency fund is crucial to handle unexpected expenses without derailing your financial plan.

Setting a Goal
Aim to save at least 3-6 months’ worth of living expenses in your emergency fund.

Starting Small
Start by saving a small amount each month. As your financial situation improves, increase your contributions to the emergency fund.

Evaluating Financial Habits
Your financial habits play a crucial role in managing your finances effectively.

Tracking Expenses
Track your expenses to identify areas where you can save. Use budgeting apps or maintain a simple spreadsheet.

Setting Financial Goals
Set short-term and long-term financial goals. This helps in staying focused and motivated.

Regular Review
Regularly review your financial plan and make adjustments as needed. This ensures you stay on track to achieve your goals.

Power of Compounding in Mutual Funds
Mutual funds are an excellent way to grow your savings over time. Let's understand their benefits.

Categories of Mutual Funds
Equity Funds: Invest in stocks, offering high returns but with higher risk.
Debt Funds: Invest in fixed income securities, offering lower returns but with lower risk.
Hybrid Funds: Invest in both equity and debt, balancing risk and return.
Advantages of Mutual Funds
Diversification: Spread your investment across various securities, reducing risk.
Professional Management: Managed by experts who make informed decisions.
Liquidity: Easily buy or sell units, providing flexibility.
Compounding: Reinvesting earnings generates earnings on earnings, growing your investment exponentially.
Importance of a Certified Financial Planner (CFP)
A CFP can provide personalized advice, helping you create a comprehensive financial plan.

Benefits of a CFP
Expertise: In-depth knowledge and expertise in financial planning.
Personalized Advice: Tailored advice based on your financial situation and goals.
Ongoing Support: Regular reviews and adjustments to your financial plan.
Final Insights
Clearing your loans and managing expenses is the first step towards financial stability. Start by prioritizing and paying off your smallest loans. Create a monthly budget to manage expenses and identify areas to cut costs. Once your loans are cleared, start saving for your child's education through a dedicated savings account and SIP in mutual funds. Build an emergency fund to handle unexpected expenses. Regularly review your financial plan with a Certified Financial Planner to stay on track 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.