23-Year-Old Teacher from Kolkata Asks: How Can I Save More for My Future?

Hello Sir/ Ma'am! Hope you are doing well! My name is Megha ( 23 years) and I am from Kolkata. I come from a lower middle class family and work as a teacher in the secondary section of a reputed school in Kolkata. I draw a monthly salary of 28000 rupees as a contractual employee and my salary is expected to increase in future substantially. I have around 2 lacs saved in the bank and an fd of 2 lacs as well which is scheduled to mature in 3 yrs. Dear Sir/ Ma'am, could you kindly guide me on the different means on how I could save up substantially for the future ( considering my retirement is at 60)? My general monthly expenditure are as follows: 1) parents - 8000 rupees 2) bills and other expenses - 10000 rupees. 3) savings - 10,000 rupees. Your guidance on this matter will be extremely valuable. Thank you. Regards, Megha.

Ans: Dear Megha,
To achieve substantial savings for the future, start by creating an **emergency fund** that covers 3-6 months of expenses (around Rs. 50,000-1 lakh). This ensures you have a safety net for unexpected financial needs.
Next, invest in a **Public Provident Fund (PPF)**, which offers tax benefits and long-term growth. Aim to invest Rs. 5,000-7,000 per month from your savings. Additionally, you can start a **Systematic Investment Plan (SIP)** with Rs. 2,000-3,000 in diversified mutual funds. Over time, this will help you build wealth through compounding.
Since you already have an FD, consider opening a **Recurring Deposit** for a safe, fixed-return investment to complement your FD.
Also, ensure that you and your parents are adequately covered with **health insurance**. This will help avoid large medical expenses in case of emergencies.
As your salary increases in the future, consistently increase your savings and investment amounts. Over time, these small, regular investments in SIPs, PPF, and recurring deposits will accumulate to a significant sum by your retirement.
My suggestion is to define a disciplined approach and invest a minimum of 20% of your salary, and a maximum can be up to 50% for the future; you can define different goals like Retirement, Marriage, Home purchase, Travel, Medical emergencies, etc. and depending on your goals
This disciplined approach to saving and investing will build a strong financial foundation, helping you achieve financial security by the time you retire.
Best regards!
Nitin Narkhede
Founder & MD, Prosperity Lifestyle Hub https://Nitinnarkhede.com
Free Webinar https://bit.ly/PLH-Webinar

Ans: First off, I commend your diligent saving habits and foresight in planning for your future. Balancing household expenses, future goals, and your parents' health needs is no small feat. Your current savings and investment strategies show a proactive approach towards securing financial stability.

Given your age and responsibilities, it’s crucial to create a structured financial plan. You have specific goals: retirement at 58, funds for marriage in 2-3 years, and a safety net for parents' health. Let's delve into how you can allocate your resources effectively to achieve these goals.

Analyzing Current Savings and Investments
You have a solid foundation with savings across different instruments. Here’s a quick overview of your current assets:

EPF: Rs. 2.5 lakhs
PPF: Rs. 1.5 lakhs
Mutual Funds (ELSS): Rs. 3 lakhs
Fixed Deposit (FD): Rs. 4 lakhs
Health Insurance: Rs. 5 lakhs (self) and Rs. 6 lakhs (parents)
Your existing investments in PPF, mutual funds, and gold are thoughtful choices. Each serves a unique purpose and balances growth with security.

Monthly Income and Expense Analysis
With a monthly in-hand salary of Rs. 1 lakh and expenses of Rs. 50,000, you have a surplus of Rs. 50,000 to allocate towards savings and investments. This provides a good cushion for building your future financial goals.

Goal-Specific Investment Strategies
1. Marriage Fund (Rs. 10 lakhs in 2-3 years)

To accumulate Rs. 10 lakhs for your marriage in the next 2-3 years, focus on low-risk, short-term investment options. Here’s how you can allocate:

Fixed Deposits: Continue or increase your FD contributions as they provide guaranteed returns. Allocate a portion of your surplus to FDs. This ensures liquidity and safety.

Recurring Deposits: These are ideal for building funds over a short period. You could start a recurring deposit with monthly contributions from your surplus.

Debt Mutual Funds: These funds are relatively safer than equity funds and offer better returns than FDs. Investing in short-term debt funds can provide the growth needed for your marriage fund.

Since you already invest Rs. 30,000 yearly in gold, consider increasing this amount slightly if gold aligns with your wedding plans.

2. Retirement Planning (Retire at 58 years)

You have 24 years until retirement, giving you a significant time horizon for compounding. Here's how you can structure your retirement savings:

EPF and PPF: Continue your contributions to EPF and PPF. They offer tax benefits and guaranteed returns. Consider increasing your PPF contributions if possible, as it’s a long-term, secure investment.

Equity Mutual Funds: Given your long-term horizon, equity mutual funds are excellent for growth. Consider diversifying into large-cap and multi-cap funds. These funds balance risk and growth potential.

Systematic Investment Plan (SIP): Increase your monthly SIPs in equity mutual funds. SIPs average out market volatility and provide disciplined investing. Aim to allocate a portion of your surplus to SIPs for consistent growth.

Voluntary Provident Fund (VPF): If your employer offers VPF, it’s a great way to boost retirement savings with tax benefits and higher interest rates compared to FDs.

3. Parents’ Medical Fund

Healthcare costs can be unpredictable and high. Here's how you can ensure you have a robust medical fund:

Health Insurance: You already have a substantial health insurance cover for yourself and your parents. Consider reviewing the coverage annually to ensure it meets your needs as medical costs rise.

Medical Emergency Fund: Set aside a dedicated fund for any immediate medical expenses. Allocate a portion of your FD or savings to this fund. This ensures quick access to funds without disrupting your other savings.

Invest in Balanced Funds: Balanced or hybrid mutual funds offer a mix of equity and debt. They provide moderate growth with lower risk. This can be a good option for building a fund for unforeseen medical expenses.

Reviewing and Adjusting Current Investments
Public Provident Fund (PPF)

Your annual investment of Rs. 50,000 in PPF is beneficial for long-term growth and tax savings. Given its 15-year lock-in period, it aligns well with your retirement planning. However, if possible, consider increasing your contributions up to the maximum limit of Rs. 1.5 lakhs for better compounding and tax efficiency.

Mutual Funds (ELSS)

Equity Linked Savings Schemes (ELSS) are great for tax savings and long-term growth. Your Rs. 50,000 annual contribution is a solid step. You might want to explore other equity funds beyond ELSS for more diversification and potentially higher returns.

Gold Investments

Investing in gold for future use, such as your marriage, is wise. It acts as a hedge against inflation. However, gold should not form a large part of your portfolio. Maintain your current allocation but avoid over-investing in it due to its lower growth potential compared to equities.

Fixed Deposits (FD)

Your Rs. 4 lakh in FDs provide stability and liquidity. Consider diversifying into other short-term instruments that might offer higher returns, such as debt funds or recurring deposits.

Structuring Your Monthly Savings and Investments
With a Rs. 50,000 monthly surplus, here’s a suggested allocation:

Marriage Fund: Allocate Rs. 15,000 towards FDs, recurring deposits, or short-term debt funds. This helps build your marriage fund efficiently.

Retirement Savings: Increase your SIPs to Rs. 20,000 monthly in a mix of equity mutual funds. This ensures your retirement fund grows steadily over the years.

Parents’ Medical Fund: Allocate Rs. 10,000 monthly towards a dedicated medical emergency fund or balanced funds. This creates a safety net for any unforeseen medical expenses.

PPF Contribution: If possible, increase your PPF contributions to Rs. 12,500 monthly (Rs. 1.5 lakhs annually). This maximizes your long-term, tax-efficient savings.

Importance of Regular Monitoring and Review
Financial planning is not a one-time task but a continuous process. Regularly review and adjust your investments to stay aligned with your goals.

Annual Review: Assess your portfolio at least once a year. Check if your investments are performing as expected and adjust based on changes in your life or goals.

Adjust for Inflation: Factor in inflation for long-term goals like retirement. Ensure your investment returns are outpacing inflation to maintain your purchasing power.

Rebalance Portfolio: Rebalancing ensures your asset allocation stays aligned with your risk tolerance and goals. Shift funds from over-performing to under-performing assets as needed.

Role of a Certified Financial Planner (CFP)
A CFP can provide tailored advice based on your unique situation. They can help in:

Goal-Based Planning: Creating a detailed plan for each financial goal, considering your risk appetite and time horizon.

Tax Efficiency: Maximizing tax benefits and minimizing tax liabilities through smart investment choices.

Risk Management: Ensuring adequate insurance coverage and building emergency funds to mitigate financial risks.

Investment Selection: Choosing the right mix of investments that align with your goals and financial situation.

Final Insights
Your disciplined saving and investment approach is commendable. Balancing immediate needs with long-term goals requires careful planning and consistent effort. Here’s a summary of the steps you can take:

Continue and Enhance Current Investments: Maintain and increase contributions to EPF, PPF, and SIPs in equity mutual funds. These form the backbone of your long-term savings.

Focus on Short-Term Goals: Allocate funds towards low-risk, short-term investments for your marriage fund. Use FDs, recurring deposits, and debt mutual funds to ensure safety and liquidity.

Build a Medical Fund: Establish a dedicated fund for parents' medical expenses. Use balanced funds and FDs to ensure availability when needed.

Monitor and Review: Regularly assess your portfolio and adjust based on performance and changing goals. Rebalance to maintain optimal asset allocation.

Seek Professional Guidance: Consult a CFP for personalized advice. They can provide insights and strategies tailored to your financial landscape and goals.

With these strategies, you can confidently navigate towards a secure financial future, balancing both your immediate and long-term objectives.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in