How can I improve my finances with a salary of Rs.67,000?

Ans: At 50, you have a significant responsibility as a widow with two children in college.

You have a home, which provides security and stability, and savings of Rs 15 lakh, two LIC policies, and some gold.

Your income is Rs 40,000 per month from contract work in healthcare.

Given your position, here’s a comprehensive financial guide to support your goals and build security for you and your children’s future.

Build an Emergency Fund

Setting up an emergency fund is a priority to cover any unforeseen expenses.

This should equal 6–12 months of essential expenses, ensuring you have a cushion if you face job uncertainties.

Consider liquid funds for this purpose, as they offer easy access and moderate returns.

Review Existing LIC Policies

You currently hold LIC policies of Rs 10 lakh and Rs 8 lakh.

Insurance policies are traditionally low in returns, especially if they are investment-oriented.

To maximize returns, consider surrendering these and reinvesting in mutual funds, if they don’t have significant penalties or surrender charges.

Reinvesting these into well-chosen, actively managed mutual funds could yield better growth, helping meet your financial needs more effectively.

Optimise Savings for Growth

To make the most of your Rs 15 lakh savings, consider dividing the amount into various investment avenues.

Fixed Deposits (FDs) are safe but have limited growth potential. A mix of debt and equity mutual funds can offer better returns.

Debt funds are ideal for stable growth, while balanced equity funds offer a moderate risk-return balance.

Mutual Fund Investments

Since you’re looking for long-term growth, actively managed mutual funds could be a suitable choice.

Actively managed funds allow for expert supervision, adjusting investments to optimize returns based on market trends.

It’s beneficial to consult with a Certified Financial Planner (CFP) for guidance on selecting these funds, which will help in growing wealth over time.

Avoid Direct Mutual Funds

Direct funds may seem economical due to lower expense ratios, but managing them independently requires expertise.

A regular plan, managed through a CFP, includes advisory services that can help you make informed decisions and adjust to market changes.

This assistance can be invaluable, especially for someone managing various responsibilities alone.

Disadvantages of Index Funds

Index funds may sound attractive due to lower costs and simplicity, but they have limitations.

These funds mirror the index and can’t respond to market fluctuations effectively. This could lead to lower returns compared to actively managed funds.

Actively managed funds, by contrast, adjust their portfolios to aim for better returns, which can benefit you in the long term.

Allocate for Children’s Education

Both of your children are in graduation, so education expenses will continue for a few more years.

It’s wise to set aside funds specifically for this purpose, perhaps in a debt mutual fund for safer returns.

Debt funds offer stable growth and can be easily liquidated as education expenses arise.

Retirement Planning

With no retirement fund mentioned, it’s crucial to establish one now.

Since you may not have a regular pension or provident fund as a contract worker, you’ll need to rely on personal investments for post-retirement income.

Setting up a systematic investment in a balanced equity fund is a wise way to build a corpus over the next few years.

Generate Passive Income through SWP

A Systematic Withdrawal Plan (SWP) in mutual funds can provide a steady monthly income while preserving your capital.

With an SWP, you can withdraw a fixed amount every month, which can supplement your income post-retirement.

It allows the remaining investment to continue growing, giving you both income and potential growth.

Gold as a Backup

Gold is a valuable asset in your portfolio, especially in uncertain economic times.

It can be used as a last-resort backup if you face financial strain, or you may consider pledging it for a low-interest loan in emergencies.

Retaining gold as part of your net worth also adds security, as it’s generally stable and can hedge against inflation.

Tax Implications

As your income and investments grow, being aware of tax liabilities will be beneficial.

Earnings from mutual funds are taxable. Gains above Rs 1.25 lakh on equity funds are taxed at 12.5% as LTCG, while STCG is taxed at 20%. Debt funds are taxed as per your income slab.

A CFP can assist in devising a tax-efficient investment plan to maximize your take-home returns.

Insurance and Health Cover

Since you’re in healthcare, consider a personal health policy that offers ample coverage for you and your children.

Health issues or medical emergencies can have significant financial implications, so an adequate health policy will provide security.

Make sure the coverage amount is sufficient, especially as medical costs are continually rising.

Finally

Balancing current needs with future security is essential.

This guidance provides a rounded approach to managing your finances, aiming for security, growth, and stability.

Regular reviews of your financial plan, ideally with a Certified Financial Planner, will help you stay on track and make adjustments as necessary.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: You have started well with investments despite some liabilities. Let’s analyse your situation carefully and design a plan to strengthen your finances and secure your daughter’s future.

Income and Expense Analysis
Your monthly salary is Rs. 35,000, steady income.

You pay Rs. 15,000 as EMI for personal loan; 16 EMIs remain.

House rent and groceries cost about Rs. 10,000 monthly.

Mutual fund SIP is Rs. 6,000 per month.

Your total fixed outgo is high compared to income.

Managing expenses while repaying loan is challenging but possible.

Current Investments Review
You have invested Rs. 1.5 lakhs in mutual funds.

Your monthly SIP of Rs. 6,000 is a good habit.

Your daughter’s savings account receives Rs. 1,500 monthly.

The savings account is safe but offers limited growth.

Mutual funds offer growth but need careful fund selection.

Avoid index funds as they track markets passively and may underperform.

Prefer actively managed funds for better returns and risk management.

Investing through regular mutual fund distributors with CFP support is wise.

Debt Management and Its Impact
Personal loan EMI of Rs. 15,000 is 43% of your income.

High EMI restricts your ability to save and invest.

Priority is to repay the loan fully as early as possible.

Avoid taking new loans during this repayment period.

Consider prepaying part of the loan if you get any lump sum.

After loan closure, redirect EMI amount towards investments.

Monthly Budgeting and Expense Control
Total monthly essential expenses (rent + groceries) Rs. 10,000.

Track all expenses to avoid unnecessary spending.

Avoid lifestyle inflation to save more effectively.

Allocate funds prudently between expenses, loan, and investments.

Plan budget monthly and review progress regularly.

Investment Strategy for Daughter’s Future
Education cost will rise significantly over next 10-15 years.

Increase contributions to her savings systematically.

Start a dedicated SIP in equity mutual funds for her education corpus.

Equity investments have higher growth potential over 10+ years.

Gradually balance equity exposure with safer funds closer to goal.

Continue current savings account contributions for safety and liquidity.

Emergency Fund Importance
Maintain emergency fund equal to 3-6 months of expenses.

Emergency fund safeguards against job loss or unexpected needs.

Keep emergency fund in liquid and safe instruments.

Do not use emergency fund for investment or loan repayment.

Tax Planning and Efficiency
Your salary likely falls under taxable income; optimize tax savings.

Utilize available tax-saving options under applicable sections.

Mutual fund investments have tax implications on capital gains.

Plan withdrawals to minimise tax liability.

Use professional help to optimise tax and investment simultaneously.

Investment through Certified Financial Planner
Investing through a Certified Financial Planner ensures professional guidance.

CFPs select funds, balance risk, and monitor portfolios regularly.

Avoid investing directly in mutual funds without expert advice.

CFPs help in goal planning and adjust investments with changing life needs.

Building Long-Term Wealth
Start with manageable SIP amounts and increase gradually post-loan.

Invest in actively managed funds to maximize returns.

Diversify across equity and debt funds based on risk tolerance.

Discipline and patience in investing help achieve long-term goals.

Avoiding Common Investment Pitfalls
Do not stop or interrupt SIPs during market volatility.

Avoid chasing schemes based on short-term returns.

Resist investing in schemes you don’t understand well.

Avoid excessive focus on tax saving alone; focus on wealth creation.

Final Insights
You are on the right track by investing monthly and saving for your daughter.

Focus on repaying the personal loan quickly to reduce financial burden.

Increase investment amounts post loan closure.

Use a Certified Financial Planner for expert fund selection and monitoring.

Maintain emergency fund for security.

Build a diversified portfolio balancing equity and debt funds.

Keep reviewing your financial plan yearly to stay aligned with goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment