POSTED BY July 29, 2012 1:48 pm COMMENTS (12)ON
I am Viswanath – 32 years, married and blessed with a little daughter (1 month old) living in abu dhabi.
I draw 2 lakhs p.m and my monthly expenditure is Rs.50,000.
My assets include:
3 BHK individual home in Trichy (finished paying home loans) – renting @ 7500 pm
2 BHK in Chennai recently booked. (will be self financing as construction is in foundation stage).
(expected completion is 2014 March – planning to rent after that)
Have some Bank FD’s – 3 Lakhs.
Have Jeevan Anand from LIC for 5L + 5L (20 and 25 years tenure respectively) – started 2004
Paying premium of 25000 p.a
For wife, Jeevan Anand for 3L with 20 years tenure – started 2010
Paying premium of 12,500 p.a
LIC Market plus @ 10,000 p.a paying for last 5 years – 2 Nos
LIC Money plus @ 10,000 p.a paying for last 4 years – 1 No
Because I have started the ULIPs, I wish to continue for 10 years (min).
I would like to achieve the below goals & need advice from financial guru’s :
1. Child’s education plan (30 Lakhs)
2. Save for her marriage (25 Lakhs)
3. Earn a monthly pension around Rs.50,000 (considering retirement at 58 years)
My major portion (60%) of savings would go to my new home till 2013.
Looking forward for replies from some experts, so I can start a disciplined approach to meet my goals.
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12 replies on this article “Need help in Financial Planning”
You have invested most of your money in debt (JeevanAnand) and ULIPs.
Since you have invested more than 6-7 years, I would like you to continue on this.
From your monthly savings, you can go for a PPF deposit of 1lakh(if not started) per annum and invest the rest of the money in good Mid-cap mutual finds to get good return for your daughter’s marriage and study.
ALL THE BEST…
LIFE EXPECTENCY 80
BABY 1MONTH AGE
CHILD MARRIAGE @ 25 YEARS
PRESENT COST OF MARRIAGE 10,00,000
REMAINIG YEARS 25 YEARS
CORPUS NEED FOR MARRIAGE @25 YEARS=3813392.
YOU NEED TO INVEST 2,700/- P.M INEQUITY ORIENTED SIP FOR 25 YEARS.
CORPUS NEED FOR EDUCATION @ 15-18-24 YERS
15-18 FOR 3 YRS@200000 PA=2643243
18-24 FOR 6 YRS@500000 -PA=2550096
YOU NEED TO INVEST 6,100/- P.M INEQUITY ORIENTED SIP FOR 15YEARS.
ANNUITY NEED=80-32=48 YRS
SERVICE REMAIN=58-32=26 YRS
YOU NEED FIRST MONTH EXPENDITURE@201156/-(5.5% INFLATION)
IF YOU NEED ANNUITY @ 50000/-,YOUR PRESENT EXPENSES SHOULD BE 12,428.
IT MEANS TO DAYS 50000=201156 AFTER 26 YEARS.
CORPUS YOU NEED TO GENERATE MONTHLY CASH FLOW IN THE FIRST MONTH OF YOUR RETIREMENT IS
YOU NEED TO INVEST 25,885/- P.M INEQUITY ORIENTED SIP FOR 25 YEARS.
THESE ARE NOT ENOUGH YOU SHOULD ALLIGN YOUR GOALS WITH THIS QUANTS.
i calculated this according to your info,i didnt touch your investments and etc,in mly 2 laks income you can manage this along your house commitments.and also there may be a growth in your career,dont worry about these goals you have enough money and time for your corpus.in above calculation pls consider alternation according your risk appetite
P B DEEKSHIT.
Can you provide some information about yourself and your career viz. education, yrs in the job, past career path, past incomes and what you think you would do/aim for in future.
Have you ever calculated the CAGR of your ‘Human Capital’ so far i.e. what was your income in first year of work and what it is today? In your opinion what lies ahead in the career path- in coming 5 yrs, 10 yrs, till ur retirement? Any guesses, ideas or plans/aims regarding this
You see, financial planning is not only concerned with your ‘Financial Capital’ but we need to understand the ‘whole’ of you to provide the optimal and sensible advice.
What is the market value of ur Trichy house? The yearly rental being 90,000/-, my guess is @ 30 lacs(+or- 5lacs).
I started my gulf career in 2004 as engineer and grew up to Manager position today. I am a graduate engineer passed out in 2001.Next move in career in terms of position would be to become regional manager in next 5 years and then GM in another 10 years from that and continue till retirement.
I expect an yearly increase of 5% (conservative)
When I calculated CAGR, it showed 19% for 8 year time period.
You are right, present value of that home is 32L
I want you to deliberate more on the possible rate of career growth in future you think is possible and a logic behind arriving at that figure. THIS IS MOST important and you will appreciate this point as we move ahead in this discussion.
There is a lot I would like to discuss and first and foremost will be your insurance(life, accident-disability, health/long term care, property, liability) – regarding how much cover is ur need, what to do with ur existing insurance portfolio, the budget allocation for it, what new steps/plans to be taken or not and how to fit everything in the whole scenario.( Right away also I can give you some quick solution but which I’m just delaying a bit)
Now, I’m suggesting just one of the possible paths of actions to be taken to satisfy 3 goals u have stated and sought advice upon.
All ur 3 aims get satisfied from the investments already done and what u will be doing and saving in next two years.
As there is no loan outstanding, ur Trichy flat is enough to satisfy the aim of child education and marriage plans. Its capital value( increasing 10-12% p.a.) and the rentals receivable from it are sufficient for the future purpose of child education and marriage.
Ur flat in Chennai is good enough to create you required pension through reverse mortgage and investing the rentals receivables in future years.
My suggestion to invest rentals for ur case – a person who is comfortable to invest in real estate- is to buy a THIRD residential property after two years once the Chennai flat is completed and rented out.Its cost should be so chosen that the part finance is through ur 1 lac saving per month and rest from bank loan. Its EMI should be so chosen that rents of all the flats are covering the EMI.
This third flat will be acting like sink to invest ur rental incomes in a safe and high growth mode plus this would be a buffer to support the 3 goals to be achieved.
Now that we are done with ur problem( one of possible many good solutions), I would wish we again focus on the ‘human capital’.
What is salary of the RM, GM and the person you would be becoming after 28 yrs today?
If you are friendly with ur RM, then can u ask him what is to calculate CAGR of his human capital.
One more question. What is ‘conservative’ rate of returns or expectation one should consider in following situations according to you?
So far the equities have delivered 16% ROR from inception of index. What ‘conservative’ rate u consider in future?
So far, say a child has scored 90% marks till his 8th standard. What ‘conservative’ estimate u can make about his score in the next exam?
Inflation has been hoverring @8%, what ‘conservative’ estimate of it in future over long term?
(These are 3 out of 10 questions I would pose for u)
Back in the groove, man!
Regarding insurance : I feel that existing life cover is only for 10L(self) from my side. Health insurance for self and family are covered in full as along as we live in middle east. Trichy house already taken property insurance for 15L(includes building,compound & furniture).
Regarding future positions and incomes :
RM draws approximately 3.5 L and GM around 6L(net). I could not get CAGR from them as they are not in station.
I expect ROR from investments to be 12% p.a and inflation 9% p.a.
Have you realised now what is the salary growth rate you will get if you are going to be promoted to the RM’s post after some 5 yrs?( By that time, the RM too will be attempting to become a GM, isn’t it?)
As in your case; the RM’s income is @ 75% more than you and the GM’s income is @70% more than RM’s. So looking at your past performance and your future goals the ‘conservative’ rate of growth of your career can never be so low as 5%. Assigning a proper & fair growth rate to our career path is important as it is important for any other asset class, inflation type economic variables.
The stocks give more returns in long term compared to other safe classes like debt or gold.
Why? because in a way stocks represent human’s enterprising spirit and this risk taking is awarded more than the safe , less risk bearing debt investments. If stocks are going to give 12% conservative returns(as compared to 16% in reality), then your human capital performance too should be assessed properly.
The ‘human capital’ is a combination of physical and mental abilities. In today’s world the mental abilities are more powerful and they do get paid accordingly.
The earning, wealth creation and goal achievements in future are impacted a lot with what sensible rates we consider for investments, earnings and expenses.
If we considered only 5% growth rate(as suggested by you) for the career then in next some 14.5 yrs your income would double and it would be only 4 times today’s level by your retirement age of @60 yrs. Along with that if the inflation is @9% in future then @ age 60 the expenses would be @ 16 times. So all of the salary would be used up living need!! A real hands to mouth existence indeed like a daily wage earning farm labour today!!!(These calculations can be done easily with the ‘rule of 72’)
My point is , the set of assumptions should be decided and defined in a logical, correct fashion then only we can think and create meaningful scenarios and solutions.
Understanding our ‘human capital’ or ‘own potential’ has a huge impact on life insurance and retirement planning of an individual. These two are the cornerstones of the building/structure of FP. So what rate or range of rates we should consider in your case based on the past performance and the future aims of your career?
Amazing concept. Thanks
Dear Viswanath, what’s the cost of the Chennai house & what ‘ll be your mly contribution for this house?
50000 Rs. pension amount is as per current requirement or 50000 Rs. is the actual need @ age 58.
Thank you for responding.
1. Cost of Chennai flat is 53L and I use 80% from my savings & closed some FD’s. My actual monthly contribution is to meet balance 20% (that too required around mid 2013).
So actually I would contribute 50k p.m towards home.
Apologies for the wrong information in my note, instead of 60%, it must be read as 35%.
2. 50k is pension amount as per current requirement.
Dear Viswanath, mly income is 2L Rs. 50K is the mly expenses, 50K is the house payment, what’s your plan for remaining 1L Rs. saving?
What ‘ll happen to your d’ter’s education & other planning if you are no more in near future (Please treat this question in terms of inadequate life cover for your life).