Moderate expenses and channel savings towards financial goals :: Business Line

I am 44 years old and my wife is 39. We run a tax consultancy firm. Our daughters are aged 14 and 12. We live in our own house. Our present monthly income is Rs 1.5 lakh besides which we earn Rs 25,000 through rentals. Our annual income is expected to increase at 10 per cent over the next 14 years.

Our monthly expenses are Rs 60,000. We have an annual budget of Rs 1.8 lakh for leisure travel. If I settle in a metropolitan post-retirement, my expenses may increase.

I have a term insurance cover for Rs 50 lakh and a mediclaim policy for Rs 3 lakh per family member. The annual premium for both is Rs 60,000.

We have bought a piece of land for Rs 50 lakh with a loan of Rs 25 lakh. Our EMI is Rs 55,000 and the loan will be repaid by 2019.

I am investing in mutual funds through the SIP mode, a sum of Rs 20,000 and the present value of our investment is Rs 10 lakh.

I am running an RD for Rs 5,000 a month and the accumulated balance is Rs 1.2 lakh.

From January, I have started contributing Rs 10,000 towards PPF.

Requirements: To finance the education of my elder daughter I need Rs 5 lakh a year from 2016 for five years. For my younger daughter I need Rs 12 lakh a year for six years from 2018.

For their marriage I need Rs 15 lakh each in present value after 10 years.

At 58, I wish to retire from active practice. If I sell my consultancy today, I will receive a goodwill amount of Rs 90 lakh in five instalments. How much do I need to accumulate for my retirement?

— Chandramohan

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It is mandatory to plan well in advance for goals where the outflow is large. With fewer years left for your daughters’ higher education you need to concentrate only on this goal. With your liability, all your surplus may not be sufficient to meet the goals.

For instance, for your elder daughter’s higher education, till 2016 you need to save monthly a sum of Rs 34,500 and it should earn a return of 12 per cent (same return assumed for all goals).

Simultaneously, for your younger daughter, you ought to save Rs 35,800 till the start of her higher education. Earmark the current accumulated mutual fund investments towards this goal.

It appears that you have arrived at all the educational expenses by assuming admissions through management quota.

Marriage

For your daughters’ marriage within 10 years you need to accumulate Rs 58 lakh.

You may need to sell your plot to meet the marriage expenses. If the plot rate grows at 8 per cent over the next 10 years, it will be valued at Rs 1 crore.

Retirement

Your monthly expenses are on the higher side given that you live in a tier-3 city. If possible, lower it. At retirement you need a corpus of Rs 4.38 crore to live comfortably till you turn 80.

Assuming your business grows at 10 per cent, your goodwill will be Rs 3.4 crore at retirement. You will still have a shortfall of Rs 1 crore. If you utilise the surplus from the plot sale proceeds, your shortfall will be Rs 50 lakh. This can be bridged with your rental income.

Regarding your investments, stop investing in RDs and increase deployment in mutual funds. Of the total surplus invest Rs 40,000 in MFs and Rs 10,000 in gold funds and continue your PPF investments.