Hi, My age is 34 with 3 year old kid in my family ... Currently out monthly income is 1.20 Lakh per month
I own house monthly EMI of 35 K (20 year) loan value is 40 lakh (3 year already passed).
I am having monthly SIP of 20 K per month (for last 2 years) prior to this I was doing SIP of 6K since 2019.
Health insurance
Medical claim
Own car but no loan.
How i can finish my loan asap and what should by corpus for child education.
Retirement plan
Ans: First, I want to say that you’re doing a great job managing your finances. You’ve taken some solid steps, and with a bit more planning, you can achieve your goals.
Current Financial Snapshot
You’re 34 years old with a young family. Your monthly income is Rs 1.20 lakh. You have a home loan with an EMI of Rs 35,000 and a loan value of Rs 40 lakh. You’ve been paying this loan for three years. You have a monthly SIP of Rs 20,000, which you’ve been maintaining for the last two years. Before that, you had a SIP of Rs 6,000 since 2019. You also have health insurance and a car without a loan.
It’s commendable that you have a systematic investment plan (SIP) in place. Your commitment to SIPs over the years shows great discipline. Owning health insurance also shows you are mindful of unforeseen medical expenses. Having no car loan is also a good position to be in financially.
Goals and Challenges
You have two primary goals:
Finish your home loan as soon as possible.
Build a corpus for your child’s education and plan for retirement.
Assessing Your EMI Strategy
Your current home loan EMI is Rs 35,000. Paying off your loan faster will save you interest. One way to do this is by making extra payments towards your principal. Any extra amount you pay will directly reduce your principal, thus reducing the interest over time. You can make a yearly or half-yearly lump-sum payment towards the principal. This will help you finish your loan faster.
Optimizing Your SIP Investments
You are currently investing Rs 20,000 per month in SIPs. SIPs are a great way to build wealth over time. They offer the benefit of rupee cost averaging and the power of compounding. Considering your goal to finish your home loan early, you can temporarily divert a portion of your SIP amount towards making extra payments on your home loan.
Balancing Loan Repayment and SIPs
A balanced approach would be to continue your SIPs but at a reduced amount. For example, if you reduce your SIPs to Rs 15,000 per month and use the extra Rs 5,000 towards your home loan, you can accelerate your loan repayment. Once your home loan is paid off, you can increase your SIPs again.
Child’s Education Corpus
Education costs are rising, and it’s essential to start saving early. Considering your child is three years old, you have about 15 years to build a corpus for higher education. You can start a dedicated SIP for your child’s education. The power of compounding will work in your favor, given the long investment horizon.
Retirement Planning
Planning for retirement is crucial. Since you are 34 years old, you have around 26 years until retirement. You need to ensure that you have a sufficient corpus to maintain your lifestyle post-retirement. Diversify your investments across equity mutual funds, debt funds, and other instruments to balance risk and returns.
Evaluating Current Investments
Review your current SIP portfolio. Ensure that it is diversified across various sectors and types of mutual funds. This will help in mitigating risks and optimizing returns. Avoid putting all your investments in one type of fund. Consider a mix of large-cap, mid-cap, and multi-cap funds.
Health Insurance and Emergency Fund
You already have health insurance, which is excellent. Ensure that the coverage is adequate for your family’s needs. Also, maintain an emergency fund equivalent to at least six months of your expenses. This will help you handle any unexpected financial emergencies without disrupting your investments.
Regular Review and Rebalancing
Regularly review your financial plan and investment portfolio. Rebalance your portfolio at least once a year to ensure it aligns with your goals and risk tolerance. Life circumstances and market conditions change, and so should your financial plan.
Importance of Professional Guidance
While you can manage your finances on your own, having a Certified Financial Planner can provide you with expert guidance and help optimize your financial plan. They can offer personalized advice based on your unique situation and goals.
Financial Discipline and Consistency
Continue with your disciplined approach to saving and investing. Consistency is key to building wealth. Avoid making impulsive financial decisions based on short-term market movements. Stick to your plan and make adjustments as needed based on a thoughtful review.
Creating a Financial Buffer
Building a financial buffer is essential. This buffer can be in the form of a savings account or a liquid fund that you can access easily in times of need. This ensures that you don’t have to disrupt your long-term investments for short-term needs.
Benefits of Actively Managed Funds
Actively managed funds can potentially offer higher returns compared to index funds, as fund managers actively select stocks to beat the market. However, they come with higher expense ratios. Make sure to weigh the benefits against the costs and choose funds with a good track record.
Disadvantages of Direct Funds
Direct funds have lower expense ratios, but they require more active management and understanding of the market. Investing through a Mutual Fund Distributor (MFD) with CFP credentials can provide you with valuable advice and help you navigate the complexities of the market.
Final Insights
Your financial journey is unique, and you’re already on the right path. By making a few strategic adjustments, you can achieve your goals more efficiently. Keep reviewing your financial plan regularly and stay committed to your goals. Remember, financial planning is a marathon, not a sprint.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
