Need Advice on my financial status

POSTED BY Saji ON February 9, 2014 10:20 am COMMENTS (49)

Hello All,

All these years I have been never interested in the financials but after reading this blog I would really like to take a closer look at it. Here is my background/financials.

I am 29 & my husband is 33. We both earn close to 1.8L pm. Have a nursery going kid and close to 1.2L is what yearly we pay for her studies.

Expenses for a month – We maintain a monthly expenses book and the average for a month is this about 25K(Money to my in-laws 10K + 15K). No credit cards.

EMI – 23,000

Term Insurance(mine(8K) & my husband\’s(12K)) – 20,000

2 PPFs – 2 Lakhs per year.

Have been investing in HDFC Top200 & HDFC Prudence. No SIP. Whenever possible we invest money.

Need you folks to assist me in terms of arriving at a investment portfolio(monthly/Yearly). Thanks in advance for your help. Need your expertise to shape our investments for long term.

Thanks,
Ramya

49 replies on this article “Need Advice on my financial status”

  1. ashalanshu says:

    Dear Ramya, if you do have a netbnking account, just try to open a RD account there. You ‘ll get that for a given rate of interest say 9%, your mly investment of say 1000 Rs. ‘ll return you 12000+ amount after 1Y as maturity value from this RD. The maturity value ‘ll change for time frame also.

    That’s how you can calculate for your target corpus. Alternatively, if you want to use excel, you can do so to calculate the mly amount you need to invest to reach your target figure of 25L Rs. in next 31Y.

    Hope I’m clear to you now.

    Thanks

    Ashal

  2. Saji says:

    Hello Ashal,

    Don’t think I got what your are saying. Can you elaborate pls?

    Thanks,
    Ramya

  3. ashalanshu says:

    Dear Ramya, now the calculation is very simple. Please do calculate how much money you need to invest on mly basis to reach that target figure of 25L Rs. in year 2045 at your own return number. This return %age ‘ll be as per your own comfort level. Starting from 4% yly in SB account to 8-9% in FDs.

    Thanks

    Ashal

  4. Saji says:

    Thanks Ashal. I don’t want it to be too less or too much. I will stick to 8% inflation. to my surprise the amount required now has dramatically reduced.

    Instead of 44.5, I would need only 24.5L now to see off the 2045. Feeling better now :). Please let me know what do we do next.

  5. ashalanshu says:

    Dear Ramya, from my discussion with dear Rahul, you can already sense that the pain in your retirement planning is coming mainly from inflation number. If you calculate @ 9% or 8% or 7%, the results ‘ll be different and obviously you ‘ll feel much secure with these numbers. Now I’m taking a pause here and wnat you to decide, which inflation number is OK for you with your own assumption for future.

    Thanks

    Ashal

  6. Saji says:

    Hello Ashal,

    Sorry for replying late. Am back from native.

    hmm actually you woudl have realized by now we were already having a very tight control on our expenses. That’s why I calculated 20K. I can think of reducing 2K more. so lets calculate from 18K. In 31 years(2045), we need 44.5 lakhs for the first years.

    Yes, I can think of part time job after 60 until 65. Lets consider this one too in our planning.

    Thank you,
    Ramya.

  7. ashalanshu says:

    Dear Ramya, the work is very simple now. You have target in front of you. Say for age 60-61, you need 48L Rs. but check a little deeper into your current expenses. Can you cut down your expenses a little bit? Can you prolong your retirement age from 60 to 65? If not full scale job at least some part time stuff for 2 reasons – 1. to keep you active and engaged as well as to earn some money?

    Please think over it. You are not the deer in headlight. 🙂

    I do have faith in your abilities. You ‘ll come out winner. Believe me.

    Thanks

    Ashal

  8. Saji says:

    I admit I am now like a deer caught in the headlights. However for sure I have realized more than ever that we(husband & I) need to do something from now. Please let the cat out and tell me what do we do now!

    Thanks,
    Ramya

  9. ashalanshu says:

    Dear Rahul, few days ago there was an advertisement from Govt. of India that the life expectancy has increased to 69Y from 63 in a decade (2001-2011). Based upon this, I opt age 90. Yes it’s very much possible to touch age 100. We are talking here for 2050-2060-2070 not 2014 if you are referring to other developed countries.

    Thanks

    Ashal

    1. rahul123 says:

      Very bold assumption…i believe not even 1% of people able to survive till their 90th birthday….anything between 65-80 is good assumption……….

      Thanks,
      Rahul

  10. ashalanshu says:

    Dear Saji, wrong here again. Do you think the advancement in medical science is going to stop. You like it or not but by the time you ‘ll turn 60, the life expectancy for an average India ‘ll be 80+ at least. So you need to think for at least 90 if not late.

    Now this 90Y age indicates that you need to create a corpus from your remaining 30-31Y of working life to live in non working life of 30Y (post retirement). Now add the impact of inflation for age 70-75-80-85. Do you have any personal plan to tackle this situation?

    Thanks

    Ashal

    1. rahul123 says:

      Dear Ashal,

      “the life expectancy for an average India ‘ll be 80+ at least.”

      I agree to disagree with you on this. Why to stop it at 90? Why not 100?

      “Average” word used here is very ambigious.

      See the statistic for other developed countries…Even they don’t have 80+ as life expectancy (for “Average” population”)

      Thanks,
      Rahul

    2. Saji says:

      I admit I am now like a deer caught in the headlights. However for sure I have realized more than ever that we(husband & I) need to do something from now. Please let the cat out and tell me what do we do now!

      Thanks,
      Ramya

  11. Saji says:

    Ys Ashal ji. The numbers are scary..The kind of life style we are into, I would say 75 is the better bet. However what if I outlive 75 and I don’t plan it now. So to be on safer side I wud say lets consider 80Y.

    Thanks Ashal.

  12. ashalanshu says:

    Dear Ramya, Now you can see for yourself how the numbers are increasing alarmingly? Now comes the next question, how much age you see yourself till death? 70Y or 75Y or 80Y? Please put a serious thought before answering this question?

    Thanks

    Ashal

  13. Saji says:

    No Issues Ashal. If need be, will ask your email id.

    Here is the calc as you asked.. sorry for replying late. Am in native on a vacation :).

    2014 250000 2045 4798586
    2015 275000 2046 5278444
    2016 302500 2047 5806289
    2017 332750 2048 6386917
    2018 366025 2049 7025609
    2019 402627.5 2050 7728170

    Thanks,
    Ramya

  14. ashalanshu says:

    Dear Ramya, I’m waiting for your inputs. In case you feel that discussion is losing focus, please say so clearly. In case you do not want to discuss more in open public space, you can discuss the issue with any one here over personal mails.

    Thanks

    Ashal

  15. ashalanshu says:

    Dear Arun, Banks are generally not giving RM for property older than 20Y. so in case you bought your property in between 35Y to 48 age and applying for RM at 70Y age, sorry my dear friend RM is not available in most cases. 🙂

    Thanks

    Ashal

  16. akgc2 says:

    Just a point to be noted that whenever anyone trying to come to expenses at retirement do consider that you will be free from expenses on your Kids education and any rental expenses (In case you have already bought a house).

    Another point here to consider while coming for retirement corpus fund is that now a days most of people buy their own house taking home loan and repay that in 10-20 years. So if you consider the same for your Kids too, you can actually reverse mortgage your own flat/house after retirement and can get a decent monthly income for next 20-30 years (depending on the duration you choose).

    Reverse mortgage is simple to understand in a way that you loan your house to Bank and Bank pays you monthly EMI depending on the worth of your house ( worth of house at retirement it will be in Crores) and becomes the owners of flat after the demise of the owners (You and your partner) or after a specific chosen period.

    e..g You buy a house worth Rs 50 Lac taking a loan of say 40 Lac and Pay 40K monthly EMI for next years 20 years and after 20 years yo become the complete owner of the house after paying the entire home loan. Also the worth of flat could be more than Rs 4 Cr (50 Lac*2 *2 *2) after 20 years considering that property rates doubles in each 6 years.

    One should definitely plan for his/her retirement but should not forget his present happiness by putting everything in the savings for future.

    Regards
    Arun

  17. ashalanshu says:

    Dear Rahul, I request you switch over to new thread else dear Ramya’s query ‘ll be lost in our discussion. Hope you are agree to it. 🙂

    Thanks

    Ashal

    1. Saji says:

      Thanks Ashal & Rahul.

  18. ashalanshu says:

    Dear Rahul, if you want to pin point an inflation number derived from the past data, you can use this.

    inflation. eu/inflation-rates/india/historic-inflation/cpi-inflation-india.aspx

    Thanks

    Ashal

  19. ashalanshu says:

    Dear Rahul, while calculating future inflation I w’d love to err on positive side. I mean in actual the requirement was 10 Cr. Rs. but due to higher inflation number I’m targeting, the corpus comes out say 12 Cr. So I’ll be happy by having 12 Cr. Rs. in my hand. Don’t you also?

    Thanks

    Ashal

    1. rahul123 says:

      Ashal, it looks good on paper only. For many investors, the difference of 2 cr (or 20% – i.e 10 cr or 12 cr) in final numbers will be disaster.

      The issue here is the sensitivity of input parameters to any financial model (related to future prediction).

      And when we don’t have the any reliable model, it is very difficult to plan according to the wrong model (or we say assumption of flat i.e. 10% inflation)

      Thanks,
      Rahul

  20. ashalanshu says:

    Dear Ramya, no matter which calculator you use. Even a basic manual calculation on your calculator is OK. Like

    For Year 2015 figure = 1.1*X (where X is your 2014 retirement figure)
    For Year 2016 figure = 1.1* 2015 figure
    and so on.

    Now coming back to our discussion, It’s 48L Rs. in just 1st year of retirement. What about 2nd year, 3rd year……?

    So for 2046 it ‘ll be 48L * 1.1 = ????
    For 2047 = 2046 * 1.1 = ???

    Please try to calculate at least till 2050 i.e. 6Y into retirement. Put each year’s figure after your calculation.

    Thanks

    Ashal

    1. rahul123 says:

      Hi Ashal,

      May be we need to start a new thread on this topic.

      How to reduce the error while calculating the amount for retirement, considering the effect of inflation and change in economic/social environment?

      The aim here is to get a figure which is close to actual amount required. All these calculations available are not very effective, just see how 1 or 2 % increase/decrease in assumed inflation make a difference to the final amount.

      Thanks,
      Rahul

  21. Saji says:

    Thank You Ashal ji. Irritated?? Not at all. After all you guys are trying to help me. Please feel free to make me think! :).

    Coming to our discussion, with 10% inflation I would see I would need about 48L(47,98,586 to be precise) for an year. Hmm am scared!!! btw, used this link to calculate the above figure(http://www.bnpparibasmf.in/Calculators/inflationcalculator.aspx). Hope it is right.

    Thanks,
    Ramya

  22. ashalanshu says:

    Dear Rahul, thanks for forecasting the direction. Based upon the past dats the average retail inflation is around 7-8%. I’m still keeping a higher figure to be on a safer side as there is no guarantee that future ‘ll be same.

    Let dear Ramya come out with her reply. If you think, that with 10% inflation figure, I’m trying to instill a fear and then ‘ll force her to Eq. investing, sorry my dear friend. I’m not going to recommend Eq. to her. 🙂

    Thanks

    Ashal

  23. ashalanshu says:

    Dear Saij, OK. Let’s put it 2.5L Rs. in 1st year of your retirement. Now your actual retirement is 31 years away i.e. in 2045. Now if we take inflation @ 10% from here onwards, what ‘ll be the inflated expenses in your retirement’s actual 1st year?

    Please do not get irritated by my continuous counter queries. Instead of providing any spoonfed answer, I like that people use their own mind by answering such cross questions. I’m trying to opening up your own mind. I do have faith in your abilities. Hope you are OK with my approach.

    Thanks

    Ashal

    1. rahul123 says:

      Ashal,

      Inflation is always difficult to factor in financial planning.

      Why are you assuming that inflation will remain @10% (why not less or more) over next few years? I can see the direction of this discussion…..

      Can you tell us how to beat inflation (with out investing in equity/MF)?

      Thanks,
      Rahul

      1. Saji says:

        Thank you Rahul. With so much money I wud need for an year into my retirement, I am eagerly waiting for you & Ashal to comment asap :).

        Thank you.

  24. Saji says:

    Dear Ashal,

    So if I take 20K as my expense that’s comes around 2,40,000(20k*12) for an year. I am not able to calculate medical expenses now. But if I assume 10K per year as premium I would need 2,50,000 Rs for an year if I have to retire today.

    Thanks.

  25. ashalanshu says:

    Dear Ramya, now imagine today you are retired. How much money you need for your all the expenses mentioned above for Year 1 into retirement i.e. till Jan 2015?

    Thanks

    Ashal

  26. Saji says:

    Dear Ashal – Say we live 30 years into retirement!! I would like during that period we wud never want to ask anyone any money. Our medicals should be taken care w/o spending from our pocket. there should be regular income from our investment we do today. thats the expectation Ashal. Hope I answered your query.

  27. ashalanshu says:

    Dear Ramya, what is your own take for your own retirement? Forget funding and all other discussions, just tell me about your own thinking for your retirement.

    Thanks

    Ashal

  28. ashalanshu says:

    Dear Ramya, how about investing this plot money into your retirement related funding?

    Thanks

    Ashal

    1. Saji says:

      @ Ashal – Retirement related funding?? I am sure interested. Kindly let me know your views.

      @Rahul – Kindly let me know your views.

      Thank you.

      1. rahul123 says:

        Saji,

        Any estimates when are you about to receive the money from the plot?

        I am asking this because, selling a land (at right price) may take some time.

        Thanks,
        Rahul

        1. Saji says:

          mostly the deal will be made by this month end. For sure.

  29. ashalanshu says:

    Dear Ramya, how about selling that home town plot altogether to liquidate your money and to use it else where?

    Please do not withdraw PF. Transfer it to new organization.

    Thanks

    Ashal

  30. ashalanshu says:

    Dear Ramya, thanks for the additional inputs. Please start investing your surplus amount in a liquid fund. Keep investing for next 2-3Y. Once you reach a sizable corpus say 10-12L Rs. you may start investing into Eq. funds as told to you by dear Rahul. Please do not pay a single penny extra to close your home loan. Why? Paying same EMI in 2014 and 2015 and 2016 is not same. Due to inflation, in actual you are paying less into your home loan.

    Rest already discussed by dear Rahul, hence not adding more inputs.

    Thanks

    Ashal

    1. Saji says:

      Thank you Ashal.

      So that I understand, You are saying close to 1.2L(1.8L Income-60k expenses[emi+school+monthly exp]) which is being saved should be routed to say HDFC Liquid fund(this AMC where we have some money already invested)?

      There is some money we expect. Let me explain. I have changed job recently after 6 years of service. The PF amount is close to 6L. I have two options. One is to withdraw it or to transfer it to the new PF account. Need your valuable advice here too.

      Also, my husband & his sis bought a plot some 6 years back in his home town. Due to some reasons she wants to sell it off. In that transaction we might get about 8L. So as suggested by you & Rahul, in couple of months we wud be ready by 10L already(even if you suggest to transfer the PF to new account). I would like to know the options in front of us with this scenario.

      Thanks in advance Ashal.

      1. rahul123 says:

        With this additional income, the entire planning needs to do again….

  31. ashalanshu says:

    Dear Ramya, what you people are doing as of now with your excess money? I mean In-law support money + living expenses + kid’s education expenses + Home Loan EMI + PPF is not making 1.8L Rs. mly figure. Please tell the details of your savings if any you people are making from the difference amount.

    Thanks

    Ashal

    1. Saji says:

      Thank you Rajiv for the explanation.

      Dear Ashal,

      Let me give some background. We bought this house some 4 months back. It was close to 48L(including Registration) and we paid from our own source Rs 31L. About 17L we paid thru bank(HDFC). We had 2L in savings as emergency fund when we were done with the house purchase.

      All these 4 months the excess money have been used to add emergency money(1L + 2L PPF+ household items). Now that we are settled I wanted to see what to do with the excess money and started this thread. Hope I gave you enough details to suggest the monthly plan.

      Thanks in advance Ashal.

      Thanks,
      Ramya

  32. rahul123 says:

    Dear Saji,

    It is good that you kept Rs 3,00,000 for emergency. For your investment my suggestion is as below-

    1. Debt Options:
    a) You are utilizing it correctly, keep investing in PPF. I will suggest to invest upto the max amount (i.e. Rs 1,00,00) for both of you.
    b) You have taken care of emergency fund – so no need to touch it or add on it

    2. Equity option: You (and other members in this forum) may not agree with this.
    (as of now) No need to invest in equity.Reasons are as below-

    a) Capital preservation is very important
    b) Your existing home loan is @ 10.25% – which is guranteed cash outflow. This will happen for next 10 years.
    c) There is no guaranee of returns in stock market.
    d) After election in May 2014, if there is no single majority to any political party (congress/BJP ), market will remain in range bound till next elections. (see the returns in many of the MF/stocks in past 5 years)
    e) People will say that you are in high income bracket, you may not able to beat inflation with FD returns, need to pay tax on FD etc…just ignore them.
    f) Instead of investing in any of equity scheme/MF/ SIP…utilize the fraction of surplus cash in prepaying the home loan (65%)and building the cash (35%).
    g) Prepaying home loan will reduce the loan tenor significantly (the effect is much good if you prepay at the begining of loan cycle)
    h) As you are not aware of the risks involved in unknown instruments (equity/MF); my sincere suggestion is not to even think of equity for next 3-4 years. Once you reduce the home loan signigicantly (and saving some more amount), you can gradualy start of investing in equity.
    i) Please do some research, reading and get knowledge about equity/ MF over during this time.
    j) Just to tell you about the risks in MF/Equity: There is one thread at the end of this forum (somebody asked about the best MF for investment- This is started in 2010, you can see the conversation and check out the returns- most of the funds gave returns much lower than FD/PPF)

    Insurance
    1. Both of you have life cover- (i am assuming it is around Rs. 1 cr), No need to add/reduce this. Keep paying the premiums.
    2. Health insurance: Please take a family floater plan. Medical cost is increading very rapidly, one bad encounter with such emergency will blow up your savings/ financial plan. If, both of you are in good health Rs 5- 7 lakhs cover will be good. If your parent/ in laws are dependent on you, you can get a cover for them as well.

    Retirement
    1. You have already started retirement planning (investing in PPF and buying a house).
    2. If both of you are salaried , please opt out for VPF (along with EPF), the amount saved will be very good (you will realize the magic of compounding after some time).
    3. As suggested earlier, after reducing the debt (home loan) over next 3-4 years, you can think of investing in MF/Equity (after thorough research).

    Thanks,
    Rahul

  33. Saji says:

    Thanks Rahul.

    The EMI is housing loan. No car yet.

    Loan amt – 17L. Tenure – 10 years. 10.25 is the interest.

    No other savings yet as we recently bought the house. There is an emergency cash which is in FD. That is about 3L earning 11% interest in a co-op bank.

    I know we are doing well from ‘savings’ perspective but ‘investing’ is not that great.

  34. rahul123 says:

    Can you provide other information?

    1. EMI – Can you give us distrubution (home loan/education loan/car loan etc)
    2. Loan tenor and rate of interest charged
    3. Other saving (Gold/FD/Cash)

    You are doing well, only part missing is health insurance.

    Thanks,
    Rahul

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