Plan Wisely To Stay Financially Fit

The young teacher and his wife are ready to take the next step with their money and work towards essential goals, including securing their child’s future and planning for retirement, says Bengaluru-based Financial Planner

- Lovaii Navlakhi

Shivprakash Yadav, 26, teaches in a central government school in Daman and his wife Riya is a homemaker. The couple is about to start saving and investing for their future goals. Yadav has an annual take-home income of ₹6.24 lakh while the family’s annual expenses, including insurance premiums, amount to ₹3.44 lakh (see table Assets, Liabilities and Networth). Yadav wants to buy a house in three years, save for his child’s education and have enough funds to lead a comfortable life post-retirement. Here is how he can achieve immediate and long-term financial goals.

Immediate Goals Contingency fund:

Yadav must build a contingency fund that will cover the family’s expenses for three months. His savings in the bank and the cash earmarked for this purpose add up to ₹26,300. The gap has to be filled through regular, systematic investments in ultra-short-term liquid mutual funds. This fund should not be used for any other purpose as the key to financial success is discipline.

Life insurance:

Yadav holds an LIC savings-cum-insurance product, but this alone will not fulfil the family’s overall insurance requirement. So, he should buy a term plan of ₹1.5 crore that will meet all future expenses (if required) and also protect other critical goals such as their child’s education. Getting a term plan is the most cost-effective way of acquiring the required coverage. Yadav will have to pay about ₹15,000 a year, and it can be claimed as a tax deduction under section 80C of the Income Tax Act.

Health and disability insurance: