Financial Planning is an ongoing process to help you make sensible decisions about money that can help you achieve your goals in life; it’s not just about buying products like a pension or an Invidual Saving Account.
It might involve putting appropriate wills in place to protect your family, thinking about how your family will manage without your income should you fall ill or die prematurely, spending money differently, but it involves thinking about all of these things together i.e. your ‘plan’. You can build a plan on your own, or if your needs are more complex you might want the help of a Financial Consultant.
Create a sound financial plan in six steps
Courtesy http://www.financialplanning.org.uk/wayfinder/what-financial-planning
D.O.B – 03.06.1969;
Age – 41 yrs –
Employment – Service
Monthly expenditure of Rs.50,000.00 as on date is equivalent to approximately Rs.1,60,500.00 after 20 yrs. ( Assuming inflation at 6% ) BUT in reality the expenditure comes down by 40% as certain expenses are generally not required at age 60.
Hence the mentioned value can be can be taken as Rs.96,500.00 approx. which is our 3rd goal i.e.
the Retirement goal.
Let us assume the pension rate to be 6.5% after 20 yrs.
If it be so then we need a corpus of around Rs.1,78,00,000.00 to generate the said income per month then we need to follow the program given below.
PROGRAMMEInvest Rs.21,000.00 per month in risk averse instruments AND Rs.5,000.00 per month in risk bearing instruments
Higher Education of ELDER SON in 2023 i.e. after 16-17 yrs,
i.e. To create a corpus of around Rs.10,00,000.00
PROGRAMMEInvest Rs.1800.00 per month in risk averse instruments AND Rs.600.00 per month in risk bearing instruments
Higher Education for YOUNGER SON in 2029 i.e. after 23 yrs
i.e. To build a corpus of around Rs.15,00,000.00
PROGRAMMEInvest Rs.1350 .00 per month in risk averse instruments AND Rs.350.00 per month in risk bearing instruments
Sacred Thread Ceremony after 6 yrs
i.e. To create a corpus of around Rs.3,00,000.00
PROGRAMMEInvest Rs.2250 .00 per month in risk averse instruments AND Rs.1100.00 per month in risk bearing instruments
Medical coverage for self & family ( Excluding parents )
PROGRAMMEBuy a medical insurance policy for self & spouse preferably from a PSU before attaining 45 yrs that will cost around Rs.400.00 per month
Additional recommendation ( Not asked for )
Buy a Term Insurance preferably for 50 lacs that will cost around Rs.26,000.00 i.e. approximately Rs.2175.00 per month for a standard life.
Touring abroad every 5 yrs
i.e. to target of Rs.3,00,000.00 after 5 yrs
PROGRAMMEInvest Rs.4,000.00 per month for 5 yrs in risk bearing instruments
Touring abroad every 10 yrs
i.e. to target of Rs.6,00,000.00 after 5 yrs
PROGRAMMEInvest Rs.2500.00 per month for 10 yrs in risk bearing instruments
Touring abroad every 15 yrs
i.e. to target of Rs.10,00,000.00 after 15 yrs
PROGRAMMEInvest Rs.1750.00 per month for 15 yrs in risk bearing instruments
Touring abroad every 15 yrs
i.e. to target of Rs.15,00,000.00 after 20 yrs
PROGRAMMEInvest Rs.1250.00 per month for 20 yrs in risk bearing instruments
From the above plan the total investment requirement per month = Rs. 45,500.00 out of which
Rs. 26,375.00 in risk averse funds ,
Rs. 16,550.00 in risk bearing funds AND
Rs. 2575.00 for protection purpose
i.e.approximately
58% in risk averse instruments
36% in Risk bearing instruments AND
06% for protection purpose
And our existing risk averse investment commitment per month is approximately Rs. 32,500.00. Hence we are now enjoying surplus of Rs. 25,000.00 out of which we may invest per month
66.75% in Risk averse instruments
28.75% in Risk bearing instruments AND
4.50% FOR Protection purpose
Invest Rs. 5,000.00 in VPF instead of the existing Rs. 15,000.00 and allocate
Rs. 5600.00 in a pension plan making total pension contribution to approx 20% AND
Rs.4,400.00 in risk related instruments or direct stocks.
In this case the Risk Ratio changes as
Rs. 33,975.00 i.e. 59% in risk averse papers
Rs. 20,950.00 i.e. 36.50% in risk bearing papers AND
Rs. 2,575.00 i.e. 4.50% for Protection oriented items
D.O.B – 19.06.1958
Age – 52yrs 10mths
Employment – Employed with family business ( Spouse is the proprietor) and is the sole key-man of the said business.
The above plan is on the basis of certain assumptions and expectations and is not binding on anyone . The plan might fail due to various external factors like Government policies, Natural or unnatural calamities, unforeseen circumstances, etc. Whoever follows this plan does so entirely on his / her own risk and discretion
D.O.B – 11.07.1980
Age – 41 yrs –
Employment – Service
Hence, current monthly investable surplus = Rs. 72,500.00 i.e. Rs.8,70.000.00 per annum
Cash available for investment : Rs.2,50,000.00
Hence, current monthly investable surplus = Rs. 72,500.00 i.e. Rs.8,70.000.00 per annum
Cash available for investment : Rs.2,50,000.00
PROGRAMMEInvestment of Rs. 29,000.00 per month in Risk Related SIP has the potential to generate Rs. 16,50,000.00 in 4 yrs @ 12% return compounded on an annualized basis.
Investment of Rs.2,62,000.00 lump sum in a Risk Averse Fund will be able to generate Rs. 3,50,000.00 in 4 yrs at 7.5% return compounded on an annualized basis.
PROGRAMMEInvestment of Rs. 15,500.00 per month in Risk Oriented SIP has the potential to generate Rs. 15,00,000.00 in 4 yrs @ 12% return compounded on an annualized basis.
PROGRAMMEInvestment of Rs. 5,100.00 per month in PPF has the potential to generate Rs. 25,00,000.00 in 20 yrs @ 7% return compounded on an annualized basis.
PROGRAMMEInvestment of Rs. 7170.00 per month in PPF has the potential to generate Rs. 50,00,000.00 in 24 yrs @ 7% return compounded on an annualized basis.
Investment of Rs. 7170.00 per month in Pension Fund may fetch around Rs. 46,00,000.00 in 24 yrs @ 6.5% compounded on an annualized basis and also has an built in life cover of approximately 21 lacs.
Investment of Rs. 9380.00 per month in Risk Related SIP has the potential to generate
Rs. 15,000,000.00 in 24 yrs @ 13% compounded on an annualized basis.
From the above plan the total investment requirement per month = Rs. 45,500.00 out of which
Rs.53,880.00 in monthly investment in risk oriented schemes i.e. 73.5% .
Rs.19,440.00 Monthly investment in risk averse schemes i.e. 26. 5% of
Total monthly investment of Rs.73,320.00
i.e.approximately
58% in risk averse instruments
36% in Risk bearing instruments AND
06% for protection purpose
Please note that the growth rate as well as the tax impact may vary due to change in Government policies. Hence needs review every year.
D.O.B – 11. 02. 1975
Age – 39yrs –
Occupation – Service WITHOUT ANY Pension provision
In 2033 at age 58 that means another 19 years left to accumulate wealth for Retirement planning for self and spouse as well as old age medical cost provision for both
Current monthly take home after deduction of all applicable tax : Rs.95,000.00
Current EMI against Car loan to be paid for the next 3 yrs.: Rs.8,200.00
Current EMI of Rs. 14,151.00 against Personal loan of Rs. 5,00,000.00 that has a possibility to get converted to a Home loan of Rs. 10,00,000.00 w.e.f. January 2015 with EMI of Rs. 10,000.00
@ 6% inflation rate Rs. 61,000.00 after 19 yrs = Rs. 1,85,000.00 & @ 7% = Rs. 2,21,000.00
Monthly House rent is Rs. 9,000.00 now that is supposed to become Nil w.e.f. 01.01.2016
Wife : Smt. Sreya Chatterjee by occupation House wife
D.O.B.: 19/06/1978
Son : Master Rishav Chatterjee student with signs of nominal autism undergoing treatment
D.O.B.: 06/10/2008
Hence it is advisable to provide for a Financial back up for the child even after retirement of the earning parent.
PROGRAMME
Regarding the 3 cottah of land worth Rs. 2 lacs within the next 3 months it is expected that the fund requirement for the same has also been already arranged for. Hence No Plan is required.
PROGRAMME
Let us begin by planning to create a corpus of Rs.4,00,000.00 ( 20% Down payment amount to buy a flat ) by the year 2017 i.e. in 3 yr time.
Invest Rs. 3,500.00 monthly in ELSS’s through SIP mode.
Invest Rs. 6,500.00 monthly in Risk oriented schemes through SIP mode.
Avail a home loan for the rest Rs. 16,00,000.00
This EMI to start after the closure of Car loan and discontinuance of House rent.
PROGRAMME
Plan for son’s Higher Education corpus of Rs. 10,00,000.00 when he attains 18 yrs of age
Rs. 2,200.00/mth in Risk averse schemes @ 8% CAGR = Rs. 5,00,000.00 approx. in 12 yrs
Rs. 1,800.00/mth in Risk oriented schemes @ 12% CAGR = Rs. 5,00,000.00 approx. in 12 yrs
PROGRAMME
Now, let us plan for Retirement corpus of Rs. 25,000,000.00 in the next 19years.
Rs. 10,000.00/mth in Risk oriented schemes may generate with 12% CAGR = Rs. 51,00,000.00 approx. in 16 yrs
Rs. 5,000.00/mth in Risk averse schemes may generate with 7.5% CAGR = Rs. 23,50,000.00 approx. in 19 yrs.
Rs. 5,000.00/mth in Gold fund may generate with 9% CAGR = Rs. 27,00,000.00 approx. in 19 yrs.
Rs. 6,000.00/mth in Risk oriented schemes may generate with 12% CAGR = Rs. 45,00,000.00 approx. in 19 yrs.
Plot of land worth Rs. 2,00,000.00 has a growth potential @ 10% CAGR = Rs. 12,00,000.00 approx. in 19 yrs
Flat worth Rs. 20,00,000.00 has a growth potential @ 10% CAGR = Rs. 91,50,000.00 approx.in 16 yrs.
Mediclal Expense Cover Alternation :
Opt for a Floater policy worth Rs 3,00,000.00 to Rs. 5,00,000.00 as per availability at the time of renewal.
Please note that the tax impact as well as the growth rate may vary due to change in Government policies.
Hence needs review every year
D.O.B – 13.01.1972
Age – 45yrs –
Occupation – Service ( Pvt. Sector )
February, 2030 At age 58 yrs ( 13 yrs hence )
Current annual take home after deduction of all applicable tax : Rs.Rs. 13,00,000.00
Loan outstanding : Rs. 3,00,000.00 with an EMI of Rs. 16,185.00
Monthly Expense : Rs. 90,000.00
Wife : Occupation : Service ( Pvt. Sector )
D.O.B.: 17.04.1979
Parents :
Father aged around 83 yrs ( Pension holder )
Mother aged around 73 yrs ( Pension holder )
employer
includes both the parents and children provided by employer
monthly expense after retirement will be difficult in this case.
interest rate 13 or 14 yrs hence. Let us presume it to be 6% on the higher side.
Let us also ignore the inflation rate supposed to prevail after retirement as this to some extent will offset with the growth rate in
income vis – a vis investment / savings amount during the accumulation period that is till retirement.
From the available data it is observed that the major portion of investment till date is in real estate
In comparison to liquid and or cash investment. It is also observed that
PROGRAMME:Creation of Retirement corpus
Monthly payment requirement 13 yrs hence – Rs. 1,60,000.00 ( Taking inflation @ 6% )
Corpus requirement – Rs. 32,000,000.00 ( Taking pension rate @ 6% and ignoring inflation after retirement )
Additional corpus of Rs. 18,000,000.00 Considering inflation @ 6% post retirement )
Hence Total corpus to target – Rs. 50,000,000.00
Action Required :
To continue investment of Rs. 1,50,000/annum in PPF that may grow to Rs. 70,00,000.00
To continue investment of Rs. 1,00,000/annum in PF that may grow to Rs. 38,50,000.00
To continue LICI Pension premium that may grow to Rs. 6,00,000.00
To continue other LICI investments and judicious reinvestment on maturity that may grow to Rs. 8,50,000.00
To continue with the Stock portfolio that may grow to Rs. 48,50,000.00
To convert the deposit in foreign currency to a risk oriented investment that may grow to Rs. 48,50,000.00
Terminal benefit such as Gratuity to fetch Rs. 10,00,000.00
May consider SIP of Rs. 14,000.00 per month that may grow to Rs. 50,00,000.00,
Short fall of Rs. 22,000,000.00 ( considering the additional Rs. 18,000,000.00 corpus to offset inflation after retirement ) OR Rs. 40,00,000.00 ( by ignoring inflation after retirement )
Due to the absence of further liquid asset we hereby consider the growth of the Flat the present value of which is Rs. 30,00,000.00 that may fulfill the gap of Rs. 90,00.000.00 BUT still lagging behind the target by another Rs. 13,000,000.00
OR
May consider additional SIP for 13 yrs @ Rs. 12,000.00 per month that may grow to Rs. 40,00,000.00 OR @ Rs. 39,000.00 per month that may grow to Rs. 13,000,000.00 if current financial position permits
PROGRAMME: Provision for Higher Education cost for both.
For Son – Fund provision after 14 yrs – Rs. 25,00,000.00 ( as per our telephonic discussion as on 08/12/2016)
For Daughter – Fund provision after 15 yrs – Rs. 25,00,000.00 ( as per our telephonic discussion as on 08/12/2016
Action required for son :
1. To invest Rs.2, 90,000.00 in a risk averse instrument that may fetch Rs. 7,50,000.00 .
2. May consider an SIP of Rs. 5,000.00 per month that may grow to Rs. 17,50,000.00
Action required for daughter :
1. To invest Rs. 2,65,000.00 in a risk averse instrument that may fetch Rs. 7,50,000.00.
2. May consider an SIP of Rs. 4,500.00 per month that may grow to Rs. 17,50,000.00.
PROGRAMME : Provision for Daughter’s Marriage
23 yrs hence – Rs. 25,00,000.00 ( as per our discussion )
Action required :
1.To invest Rs. 55,000.00 in a risk averse instrumentthat may grow to Rs. 2,50,000.00.
2. May consider an SIP of Rs. 2,000.00 per month in a risk oriented instrument that may grow to 22,50,000.00
PROGRAMME : Programme for Medical cover :
To opt for a family floater policy for Rs. 5,00,000.00 along with a Top up of Rs. 5,00,000.00 instead of an individual mediclaim policy but needs to be reviewed / evaluated on a periodic basis.
1. Risk averse return has been calculated in between 7% and 8%.
2. Risk associated return has been calculated in between 11% and 12%.
3. Pension rate has been calculated @ 6%.
The above programme is on the basis of certain assumptions and expectations and is not binding on anyone . The plan might fail due to various external factors like Government policies, Natural or unnatural calamities, unforeseen circumstances, etc. Whoever follows this plan does so entirely on his / her own risk and discretion.
D.O.B – 26.05.1976
Age – 41yrs
Occupation – Service (Pvt. Sector)
February, 2036 At age 58 yrs ( 19 yrs hence )
Current annual take home after deduction of all applicable tax : Rs.3, 60,000.00
Wife : Occupation : Service ( Pvt. Sector )
D.O.B.: 1984
Parents :
Father aged around 75 yrs
Mother aged around 65 yrs
Both are enjoying Medical Corporate coverage
Current available surplus for further investment : Rs. 20,000.00 per month with a provision for additional Rs. 10,000.00 per month after a year on a/c of Personal loan closure as well as a further provision of Rs. 10,000.00 per month on a/c of stoppage of Rent after shifting to own home.
Advisable to buy an insurance product from an insurance co. only and an investment product from an investment co. only
PROGRAMME:Creation of Retirement corpus
Monthly payment requirement 20 yrs hence – Rs. 80,200.00 ( Taking inflation @ 6% )
Corpus requirement – Rs. 1,62,00,000.00 ( Taking pension rate @ 6% and ignoring inflation after retirement )
Action Required :
To continue investment of Rs. 100,000/annum in PF that may grow to Rs. 41,00,000.00
Terminal benefit like Gratuity expected to fetch Rs. 10,00,000.00
May opt for a PPF investment @ Rs. 96,000.00/annum i.e. Rs. 8,000.00 per month that may grow to Rs. 38,00,000.00
To continue existing LICI investments and judicious reinvestment on maturity that may grow to Rs. 13,00,000.00
May consider SIP in risk associated instrument @ Rs. 7,000.00/month that may grow to Rs. 60,00,000.00
I.E.
Additional Monthly investment of Rs. 15,000.00 is required ( PPF & SIP )
It is also recommended to go for a Term Insurance for minimum Rs. 50,00,000.00 – premium should be around Rs. 12,000.00 per annum for a standard non-smoker life.
PROGRAMME: Purchase a home/flat
Budget – Rs. 50,00,000.00 inclusive of renovation & other expense
Considering down payment to be 20% of the budget the lump sum requirement : Rs. 10,00,000.00
But cash in hand : Rs. 5,00,000.00
Hence simultaneously may earmark an SIP / RIP @ Rs. 5,000.00 per month without any fixed period such that as and when the opportunity comes this instrument is liquidated and stopped and the MONTHLY amount is adjusted with the EMI where as the redemption proceed is utilized for down payment.
Additional Rs. 20,000.00 ( Rs. 10,000.00 in lieu of rent and Rs. 10,000.00 in lieu of Personal loan closure ) is already provisioned for and is adjusted with EMI
Still Remains a deficit of another Rs. 15,000.00 approximately
The loan needs to be jointly co-opted.
The deficit in down payment ( if any ) as well as the deficit in EMI needs co-sharing.
1. Home loan amount has been taken as Rs. 40,00,000.00 and corresponding EMI has been taken as Rs. 40,000.00
2. Generally return of a Life Insurance policy does not exceed 6%. May consider surrender of the existing policies and instead may opt for a Term Insurance worth Rs. 50,00,000.00 and simultaneous investment of the residual amount of Rs. 1,000.00 per month in a SIP / RIP as well as simultaneous reinvestment of the surrender amount in PPF or other debt instruments may grow to Rs.13,00,000.00 as has been mentioned in point no. 4 under Programme 2 : Creation of Retirement corpus
3. Risk averse return has been calculated in between 7% and 8%
4. Risk associated return has been calculated in between 11% and 12%
5. Pension rate has been calculated @ 6%
The above programme is on the basis of certain assumptions and expectations and is not binding on anyone. The plan might fail due to various external factors like Government policies, Natural or unnatural calamities, unforeseen circumstances, etc. Whoeverfollows this plan does so entirely on his / her own risk and discretion
D.O.B – 30.10.1983
Age – 32yrs
Occupation – Service
Tax Bracket : 20%
February, 2043 At age 58 yrs ( 26 yrs hence )
NA
Monthly Expense : Rs. 25,000.00
Spouse : Occupation : Service ( Pvt. Sector )
D.O.B.: 02.11.1980 ( Age : 35 yrs)
Daughter :
Date of birth : 23/05/2014 ( Age : 01+ )
PROGRAMME:Contingency Plan
Cash at hand and in savings a/c, proceeds of recurring to be treated as Contingency fund and the amount needs to be equivalent to minimum 6 months monthly expense along with EMI AND savings or investment needs to be liquid enough such that any time after 3 yrs from this date the Loan amount could be foreclosed, if demands so.
PROGRAMME: Financial safe guard to family
Home loan and Personal loan are without any protection. Recommended to opt for a Term insurance worth RS. 100,00,000.00 with maximum 25 years term. Premium range expected within Rs. 15,0000.00 and Rs. 18,000.00 for a standard female life with smoking habit.
PROGRAMME: Financial Provision for Higher education of child
Invest Rs. 8,500.00 every month Sukanya Samriddhi Yoyona for 17 yrs and beyond as per requirement when she attains 18 yrs of age.Though at present the rate is 9.2% let us consider the average rate of return @ 7% for the next 17 yrs. such that corpus may become Rs. 31, 50,000.00..
PROGRAMME: Financial provision for marriage of child after 24 yrs.
Invest Rs. 1200.00 per month in a risk bearing instrument for the next 24 yrs such that the target corpus is Rs. 15,00,000.00
PROGRAMME: Retirement at age 60
Needs a corpus of around Rs 2 Crores such that at 6% rate of interest the monthly interest income is Rs. 1,05,000.00.Please note that monthly expense of Rs. 25,000.00 as on today is equivalent to approximately Rs. 1, 30,000.00 after 26 years with 6.5% inflation. Due to limited needs after retirement we may arbitrarily consider the requirement to be Rs. 1,05,000.00
i.Contribute Rs. 7,800.00 per month in PPF for the next 26 yrs such that the corpus reaches Rs. 64,00,000.00.
ii.Contribute Rs. 7,600.00 per month in risk bearing instrument for the next 26 yrs such that the corpus target is Rs. 1,36,00,000.00
iii.Contribution expected to be Rs. 750.00 per month approximately in Atal Pension Yoyona for the next 25 yrs such that to receive Rs. 5,000.00 pension every month.
1.Other existing investments in self name and spouse’s name and terminal benefits are not being considered in the above plan as these may act as a buffer to some extent in case of any adverse situation beyond control.
2.The above plan needs an investment of less than Rs. 27,250.00 per month at the initial stage but needs review with change in income level, liability, expense, etc
3.Please note that the tax impact as well as the growth rate may vary due to change in Government policies.
4.The above plan is on the basis of certain assumptions and expectations and is not binding on anyone . The plan might fail due to various external factors like Government policies, Natural or unnatural calamities, unforeseen circumstances, etc. Whoever follows this plan does so entirely on his / her own risk and discretion.
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