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How can a 37-year-old earning 1L/month with 40k loans and no savings plan for the future?

Ramalingam Kalirajan |7336 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 13, 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

Asked by Anonymous - Jul 26, 2024Hindi

Hi, I am 37 yrs old, I earn 1L month, have 40k loans. No savings. Please guide me on future savings.

Ans: Assessing Your Current Situation
You earn Rs 1 lakh per month. Your loan obligations are Rs 40,000 per month. With no savings, it's crucial to build financial stability. Your age of 37 is a good time to start. The sooner you take action, the better.

Setting Financial Goals
First, outline your financial goals. These might include:

Emergency Fund: Build an emergency fund of 6 months' expenses.

Debt Repayment: Focus on clearing your Rs 40,000 loan quickly.

Retirement Planning: Start saving for your retirement to ensure financial security later.

Children's Education: If you have children, consider their future education expenses.

Lifestyle Goals: Think about major purchases, vacations, or other lifestyle goals.

Budgeting and Cash Flow Management
Your monthly income is Rs 1 lakh. After loan payments, you have Rs 60,000 left. Here's how to manage this:

Fixed Expenses: List your monthly essentials—rent, utilities, groceries, etc.

Savings Allocation: Save 20-30% of your income. This means Rs 20,000-30,000 should go towards savings and investments.

Discretionary Spending: Allocate the rest for lifestyle expenses like dining out, entertainment, and shopping. Keep this under control to avoid overspending.

Building an Emergency Fund
An emergency fund is crucial. Aim to save Rs 3-6 lakhs as a buffer for unexpected expenses. Start by setting aside a small amount monthly.

Automate Savings: Set up an automatic transfer of Rs 10,000-15,000 per month into a liquid savings account.

Stay Disciplined: Don't dip into this fund for non-emergencies.

Debt Repayment Strategy
You have a Rs 40,000 loan. Paying this off should be a priority. Consider these steps:

Snowball or Avalanche Method: Use the debt snowball method (paying the smallest debt first) or avalanche method (paying the highest interest debt first). Choose what works best for you.

Prepayment Options: Check if your loan allows for prepayment. Use any bonuses or extra income to reduce your debt burden.

Retirement Planning
It's important to start saving for retirement now. The power of compounding works best over time. Consider these steps:

Calculate Retirement Needs: Estimate how much you will need to retire comfortably. This should include living expenses, healthcare, and any other goals.

Invest in Retirement Funds: Focus on diversified investment options. Regularly contribute to your retirement fund.

Review and Adjust: Periodically review your retirement plan and adjust based on changes in income, expenses, or goals.

Children's Education
If you have children, planning for their education is crucial. Education costs are rising. Start early to ease the burden:

Education Fund: Start a dedicated education fund. This will ensure that your child's future is secure.

Systematic Investments: Use systematic investments to build the education corpus over time.

Review Progress: Regularly review the progress of your education fund. Make adjustments as needed to stay on track.

Investment Strategy
With Rs 20,000-30,000 to invest monthly, here's a suggested approach:

Diversified Portfolio: Invest in a mix of equity, debt, and hybrid instruments. This will balance risk and return.

Active Management: Actively managed funds may offer better returns than passive options like index funds. This is especially true in a volatile market.

Regular Monitoring: Keep an eye on your investments. Adjust your portfolio based on performance and changing market conditions.

Seek Professional Guidance: Engage a Certified Financial Planner for personalized advice. This will ensure your investment strategy aligns with your goals.

Insurance and Protection
Insurance is essential to protect your family and assets. Consider the following:

Life Insurance: Ensure you have adequate life insurance coverage. This will provide for your family in case of an untimely event.

Health Insurance: Health expenses can be significant. Invest in a comprehensive health insurance policy.

Term Insurance: Term insurance is a cost-effective way to secure your family's financial future.

Tax Planning
Efficient tax planning can save you money. Consider the following:

Utilize Deductions: Make use of all available tax deductions, including those for investments, health insurance premiums, and home loan interest.

Tax-Advantaged Investments: Invest in tax-saving instruments that align with your financial goals. This will reduce your tax liability.

Plan Ahead: Tax planning should be done at the beginning of the financial year. This will help you avoid last-minute rushes.

Final Insights
Your financial journey begins now. With careful planning and disciplined execution, you can achieve your goals. Start with small, consistent steps. Over time, these will compound into significant financial security. Always review and adjust your plan as needed.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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