Hi ! I am an 31 year old working in a MNC, My monthly salary is 64000 and my fixed monthly expense are around 22000 and entertainment, outing expenses are 12000 . I do not have any savings and started working only for 6 months , could you suggest me some investment options , additionally my spouse earns around 10000 per month . I would like to make some short term and long term investments as well, since my company does not provide PF , and annualy I need to spend on ?10000 for insurance and another ?30000 for family expenses. Could you please advise me how I should start my investment plans , for short term and long term goals ,we are planning to have a child after 1-2 years.
Ans: Assessing Your Current Financial Situation
Income and Expenses
Your monthly salary is Rs. 64,000. Your spouse earns Rs. 10,000 monthly, bringing your total household income to Rs. 74,000.
Your fixed monthly expenses are:
Fixed Expenses: Rs. 22,000
Entertainment and Outings: Rs. 12,000
Annual expenses include:
Insurance: Rs. 10,000
Family Expenses: Rs. 30,000
This means your total monthly expenditure is Rs. 34,000, leaving you with a surplus of Rs. 40,000 for savings and investments.
Building an Emergency Fund
Importance of an Emergency Fund
An emergency fund is crucial for unexpected expenses, such as medical emergencies, job loss, or urgent home repairs. It provides financial security and peace of mind.
Recommended Fund Size
Aim to save at least six months’ worth of living expenses. Given your current monthly expenses of Rs. 34,000, you should target an emergency fund of Rs. 2,04,000.
Setting Up the Fund
Start by allocating a portion of your monthly surplus to a high-yield savings account or a liquid mutual fund. This ensures the fund is accessible and earns a reasonable return.
Short-Term Investment Options
Importance of Short-Term Investments
Short-term investments provide liquidity and flexibility for immediate financial goals, such as travel, car purchase, or a down payment for a house.
Recommended Instruments
Recurring Deposits (RD): A low-risk option with fixed returns.
Fixed Deposits (FD): Suitable for short-term goals with guaranteed returns.
Debt Mutual Funds: Provide better returns than savings accounts and FDs, with low risk.
Long-Term Investment Options
Importance of Long-Term Investments
Long-term investments help you build wealth over time for major life goals, such as children's education, retirement, and buying a house.
Recommended Instruments
Public Provident Fund (PPF): Offers tax benefits and guaranteed returns over a 15-year period.
Employee Provident Fund (EPF): Though your company doesn’t provide PF, consider a voluntary provident fund (VPF) if possible.
National Pension System (NPS): Provides a retirement corpus with tax benefits and market-linked returns.
Mutual Funds: Equity mutual funds for long-term growth, balanced mutual funds for moderate risk.
Retirement Planning
Importance of Early Planning
Starting early for retirement ensures you benefit from the power of compounding, leading to a larger corpus.
Strategy
NPS: Invest in NPS for its dual benefit of retirement planning and tax savings.
Equity Mutual Funds: Continue SIPs in equity mutual funds to build a significant corpus over time.
Child Planning and Future Expenses
Anticipating Future Costs
Planning for a child involves anticipating expenses related to healthcare, education, and other needs.
Investment Strategy
Child-Specific Mutual Funds: These funds are designed to meet the financial needs of children.
PPF and Sukanya Samriddhi Yojana (SSY): For long-term education planning, especially for a girl child.
Insurance Planning
Health Insurance
Ensure you have adequate health insurance to cover medical emergencies. Consider a family floater plan for comprehensive coverage.
Life Insurance
Adequate life insurance ensures financial security for your family in case of unforeseen events. Term insurance is the most cost-effective option.
Tax Planning
Maximizing Tax Benefits
Utilize tax-saving instruments under Section 80C, such as PPF, NPS, and ELSS mutual funds. Consider tax benefits from health insurance premiums under Section 80D.
Investment Allocation
Balance your investments between debt and equity to optimize tax savings and returns. Ensure you take full advantage of tax deductions available.
Reviewing and Adjusting Your Plan
Periodic Review
Regularly review your financial plan to ensure it remains aligned with your goals and market conditions.
Flexibility
Be flexible and adjust your investment strategies based on life changes, such as career growth, birth of a child, or changes in financial goals.
Sample Investment Plan
Short-Term Goals (1-5 years)
Emergency Fund: Rs. 10,000 per month in a high-yield savings account until Rs. 2,04,000 is saved.
Recurring Deposit: Rs. 5,000 per month for immediate goals.
Long-Term Goals (5+ years)
PPF: Rs. 12,000 annually for tax savings and long-term growth.
NPS: Rs. 6,500 per month for retirement planning.
Equity Mutual Funds: Rs. 20,000 per month for wealth creation.
Child Education Fund: Rs. 10,000 per month in child-specific mutual funds or Sukanya Samriddhi Yojana.
Ensuring Adequate Insurance Coverage
Health Insurance
Coverage Amount: Rs. 5 lakhs for you and your spouse.
Premium: Allocate Rs. 1,000 monthly for health insurance.
Life Insurance
Coverage Amount: 10 times your annual income.
Premium: Term insurance premium of Rs. 500 monthly.
Creating a Balanced Portfolio
Diversification
Ensure your portfolio is diversified across different asset classes to manage risk and maximize returns.
Rebalancing
Periodically rebalance your portfolio to maintain the desired asset allocation based on your risk tolerance and financial goals.
Managing Debt
Home Loan Considerations
If you plan to buy a house, ensure your home loan EMI does not exceed 40% of your take-home pay.
Credit Card and Other Debts
Avoid high-interest debts like credit card balances. If necessary, consolidate and pay off these debts quickly.
Leveraging Your Spouse’s Income
Joint Planning
Combine your spouse's income for a comprehensive financial plan. Allocate her income towards joint financial goals and emergency fund.
Investment Strategy
Encourage your spouse to invest in tax-saving instruments and SIPs to complement your financial plan.
Final Insights
By starting early and following a disciplined approach, you can achieve both your short-term and long-term financial goals.
Focus on building an emergency fund first, then diversify your investments across various asset classes for optimal growth. Ensure adequate insurance coverage and regularly review your financial plan to stay on track.
Invest in tax-saving instruments to maximize returns and tax benefits. Planning for future expenses, such as child education and retirement, will ensure financial stability and peace of mind.
Seek guidance from a Certified Financial Planner to tailor these strategies to your specific needs and goals.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in