Save a larger portion of income in a disciplined manner

Deepak Kohli, 46, was born in Lucknow and brought up in Allahabad. He works for the government of India. Deepak and his wife Alka, 41 have two children — Twinkle and Rohan. His father was in the armed forces and mother a housewife.

What is the couple saving for?

The couple wants to buy a home worth Rs 60 lakh in a year, save Rs 18 lakh for their children's education and another Rs 18 lakh for their marriage. Post retirement, the family would require Rs 7.5 lakh annually to meet their expenses. Apart from these goals, they wish to buy a luxury car and plan a foreign trip. The costs will be revised based on inflation.

Where are they today?

Cash flow: The couple's total annual inflow from all sources is Rs 16.13 lakh, against an annual outflow of Rs 9.95 lakh. The outflow comprises routine household expenses, insurance premium and house rent. Over and above their mandatory and voluntary expenses, they are regularly saving Rs 6.5 lakh in various saving instruments.

Net worth: Total assets are worth Rs 70.38 lakh, which includes cash and near-cash assets worth Rs. 2.5 lakh, assets for self consumption worth Rs 4.3 lakh. There are no liabilities.

Contingency fund: Mandatory monthly expenses of the family are Rs 55,000. Against this, the balance in savings bank account, liquid funds and cash held at home is Rs. 2.5 lakh. This is approximately 5 months' reserve.

Health & life insurance: At present, the family does not have any health insurance policy. However, all their medical expenses are completely covered by the government for life.

Deepak has a life insurance cover of Rs 4.5 lakh and Alka Rs 2.1 lakh. The government also provides cover. Additionally, they have a group insurance policy for their children worth Rs 3 lakh.

Savings & investment: The couple is saving approximately 44% of their gross annual inflow. Invested assets comprise shares and equity mutual funds worth Rs 14.24 lakh, fixed deposits and debentures worth Rs 19.51 lakh, balance in provident fund of Rs 16.11 lakh, cash value of insurance policies worth Rs 3.35 lakh and real estate from investment perspective worth Rs 10.36 lakh.

Fiscal analysis: They are saving a substantial portion of their income. Most of their assets are for building long-term wealth. Overall assets are diversified across equity, debt and real estate. While they do not have a dedicated health cover, the government will cover their expenses. Similarly, life cover is not sufficient but it would suffice for the time being since there is a cover provided by the government.

The way ahead

Contingency fund: They should maintain a contingency reserve of Rs 160,000, of which Rs 20,000 should be held as cash in hand and the balance in FD linked to savings bank account. The excess funds must be utilized to fund goals.

Health & life cover: There is no need for health cover as costs are reimbursed by the government. However, life cover will have to be enhanced when they opt for a home loan.

Planning for financial goals

Home buying: The couple wishes to buy a house worth Rs 60 lakh within a year. The provision for making a down payment of about 25% can be made by redeeming fixed deposits and equity mutual funds. The balance can be funded by taking a home loan.

Children's education: The couple wants Rs 9 lakh each for their children's education. This goal can be partly achieved by utilizing the investments made in debentures and the balance can be generated by regularly saving monthly surplus in debt-based mutual funds.

Children's marriage: Once they buy their home, they should start an SIP in a mutual fund which has a combination of debt and equity to build a corpus to meet this goal.

Retirement Planning: Post retirement, the family would require Rs 7.5 lakh annually to meet their routine expenses. Deepak would receive an annual pension from the government. Also, he has two investment-oriented pension policies which will support him. Existing investments in shares, provident fund and real estate along with regular savings will help provide for the shortfall.

Planner's eye

The couple is doing well financially not because they have a large income but they are a saving large portion of their income in a discipline manner. There could be some struggle in the next decade as all their financial goals — home buying, education and marriage — will follow in quick succession. However, their habit of saving will see them through with ease