24-Year-Old with 10LPA Income: How to Invest & Repay Education Loan?

Hello, Investment and savings guidance needed for a 24 year old, I'm earning around 10LPA and have an education loan of 6 Lakhs pending. I have no savings currently but I have invested some money in gold, medical and term insurance. Kindly guide me.

Ans: Starting early in financial planning gives an advantage. Your earnings are Rs. 10 LPA. You have an education loan of Rs. 6 lakhs. You have no savings but have invested in gold and insurance. Let’s build a strong financial plan for you.

Step 1: Clear High-Interest Loans First
Education loans usually have lower interest rates.

But repaying early can save interest costs.

Allocate extra savings towards loan repayment.

Avoid unnecessary personal or credit card loans.

Step 2: Build an Emergency Fund
Save at least 6 months of expenses in a liquid fund.

This ensures financial security in job loss or emergencies.

Keep funds in a high-liquidity, low-risk option.

Step 3: Continue Your Insurance Cover
Medical insurance protects against unexpected medical costs.

Term insurance is important if you have dependents.

If no dependents, term insurance is not a priority yet.

Review your insurance coverage annually.

Step 4: Start Saving and Investing
Begin a disciplined savings habit immediately.

Use SIP in actively managed mutual funds.

Choose a mix of large-cap, flexi-cap, and mid-cap funds.

Avoid direct mutual funds, as professional guidance helps in fund selection.

Step 5: Plan for Short-Term Goals
Identify goals for the next 3-5 years.

Short-term goals require safer investment options.

Avoid midcap funds for short-term needs.

Step 6: Plan for Long-Term Wealth Creation
Retirement may seem far, but starting now gives great benefits.

SIPs in equity funds provide long-term wealth growth.

Increase SIPs whenever your income increases.

Diversify across fund categories for risk management.

Step 7: Avoid Unnecessary Investments
Avoid ULIPs and endowment plans for wealth creation.

Gold is not a great investment for long-term growth.

Investing in real estate requires large capital, avoid at this stage.

Step 8: Tax Planning for Maximum Savings
Maximise Section 80C investments like EPF, PPF, and ELSS.

Use NPS for additional tax benefits.

Consider tax-efficient investments based on income growth.

Step 9: Review and Adjust Your Portfolio
Track your expenses and investments regularly.

Increase savings and investments as salary grows.

Avoid unnecessary loans and liabilities.

Reassess financial goals annually.

Final Insights
Repay your education loan early to reduce financial burden.

Build an emergency fund for financial security.

Start SIPs in mutual funds for long-term growth.

Avoid insurance-based investments and real estate for now.

Review your financial plan regularly and adjust accordingly.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

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

Ans: At 43 years old, with a monthly income of Rs. 60,000, your financial goals should include both immediate and long-term objectives. These goals would typically cover day-to-day expenses, children’s education, and retirement planning. Let’s break down how you can balance your current needs with future savings.

Managing Current Expenses
You have two children, aged 16 and 12, and it’s vital to manage your monthly expenses carefully. A clear budget is the foundation of good financial planning.

Household Expenses: Ensure your essential expenses are well-covered. These include food, utilities, and other daily necessities. Try to allocate a specific amount each month to prevent overspending.

Children’s Education: With children at 16 and 12 years old, educational expenses will increase, especially as your older child approaches higher education. Plan for tuition fees, books, and other related costs.

Emergency Fund: Maintain an emergency fund equivalent to at least six months of your monthly income. This fund will protect you from unexpected financial burdens like medical emergencies or job loss.

Allocating Savings for Future Needs
Balancing current expenses with savings for future needs is key to long-term financial security. Let’s explore how you can start saving efficiently.

Retirement Planning: You’re currently 43 years old, so retirement is still some years away. However, starting early is important. Consider contributing 20-30% of your income towards retirement savings. Look for options that offer a balance between growth and safety.

Children’s Higher Education: Higher education can be costly. Start investing in a dedicated plan for your children’s education. This should be separate from your retirement savings to avoid depleting your retirement funds.

Investment Options for a Secure Future
With a stable income, it’s crucial to explore the right investment options to grow your wealth. A diversified approach is recommended, keeping in mind your risk tolerance and time horizon.

Diversified Mutual Funds
Balanced Growth: Diversified mutual funds offer a mix of equity and debt, balancing risk and reward. This type of fund is ideal if you’re looking for moderate growth without exposing your investments to excessive risk.

Professional Management: Actively managed mutual funds are handled by professional fund managers who adjust the portfolio based on market conditions. This offers you peace of mind, knowing that experts are managing your investments.

Regular Savings: Systematic Investment Plans (SIPs) allow you to invest small amounts regularly. SIPs help in averaging out market volatility and building wealth over time.

Disadvantages of Index Funds and Direct Funds
You might come across index funds or direct funds as investment options. While they may seem appealing due to lower fees, they come with certain disadvantages.

Index Funds: These funds passively track an index and do not try to outperform the market. While fees are lower, they may not provide the returns you need, especially during market downturns. The lack of active management could result in missed opportunities.

Direct Funds: Direct funds cut out the intermediary, saving on commission fees. However, this approach requires you to manage and monitor your investments closely. It’s easy to make mistakes without expert guidance. Regular funds, on the other hand, offer the benefit of advice from a Certified Financial Planner, who can help optimize your investments.

Tax-Efficient Investments
Tax efficiency is a critical aspect of your financial plan. Choosing investments that offer tax benefits can maximize your returns.

Tax-Saving Instruments: Look into options that provide deductions under Section 80C, such as Public Provident Fund (PPF) or certain life insurance plans. These not only help in saving taxes but also ensure a safe return on your investment.

Long-Term Capital Gains: Consider investments that are taxed as long-term capital gains (LTCG) after a holding period. LTCG tax rates are generally lower than income tax rates, making them a tax-efficient option for wealth growth.

Insurance: Protecting Your Family’s Future
Insurance is an essential part of financial planning. It ensures that your family is financially protected in case of any unforeseen events.

Life Insurance: If you haven’t already, consider purchasing a term life insurance plan. This type of insurance provides a high coverage amount at a lower premium, ensuring your family’s financial security if something happens to you.

Health Insurance: With increasing healthcare costs, it’s important to have a comprehensive health insurance policy. This should cover you and your family, including any critical illness riders if possible.

Evaluating Your Retirement Corpus
When planning for retirement, it’s important to estimate the corpus you’ll need. The amount should be sufficient to cover your living expenses without relying on others.

Inflation: Consider inflation when planning your retirement corpus. The cost of living will increase over time, so your savings should be able to provide you with a comfortable lifestyle even 20-30 years from now.

Pension Options: If your employer offers a pension plan, review the benefits. If not, consider setting up a self-managed retirement plan that includes a mix of investments and savings.

Creating a Long-Term Investment Plan
A long-term investment plan is necessary to ensure that your savings grow steadily. This plan should include a mix of short-term and long-term investments, catering to different financial goals.

Equity Exposure: With 15-20 years until retirement, you can afford to have some exposure to equity investments. Equities have the potential to deliver higher returns over the long term, though they come with higher risks.

Debt Instruments: Complement your equity investments with safer debt instruments like bonds or fixed deposits. This will balance your portfolio and provide a steady income stream with lower risk.

Regular Review and Adjustment
A financial plan is not a one-time activity. Regularly reviewing and adjusting your plan is crucial to keep up with changes in your life and in the market.

Annual Review: Set aside time each year to review your financial plan. Assess whether your investments are performing as expected and whether you need to make any changes.

Goal Adjustment: As your children grow older and your financial situation changes, you may need to adjust your goals. Ensure your plan remains aligned with your evolving needs.

Final Insights
Balancing current expenses with future savings is a delicate task, but it’s entirely achievable with a disciplined approach. Prioritizing your children’s education, creating a solid retirement plan, and choosing tax-efficient, diversified investments will help you build a secure financial future. Regular reviews and adjustments to your plan will ensure you stay on track to meet your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in