29, single, and well on his way…

29, single, and well on his way…
Financial planner Gaurav Mashruwala cautions this MBA to keep his liabilities low


Rahul Kumar Sinha's father worked in a nationalized bank in Patna. Rahul was one of five children. His father's salary, plus income from their village land, was enough for basics. However, education was a high priority. His parents lived in rented
premises all their life, so that their income and capital could be used to educate their children. Today, three are post-grads, two are graduates, and all are well-settled. His parents finally bought a house with the retirement proceeds from his father's employer.
Rahul is 29 years old, holds an MBA, and is single. He works with a private sector bank in Mumbai.
WHAT IS HE SAVING FOR?
Though his parents are independent, he wants to set aside Rs 1 lakh every year for them and other family members. This is his topmost priority.
He wants to purchase a house of his own within the next two-three years. For that he needs Rs 50 lakhs. He also dreams of a car worth Rs 7 lakhs and foreign travel worth Rs 1 lakh in the immediate future.
WHERE IS HE TODAY?
Cash flow: The total monthly inflow from his salary and investments is Rs 93,000. Of this, he spends Rs 41,000 on routine expense, rent, taxes, insurance premium and about 14 % towards the EMI on his education loan. Net worth: His assets are worth Rs 7.23 lakhs most of which is for investment purpose. He has jewelry worth Rs 20,000. On the liability side, he has an outstanding education loan of Rs 4 lakhs - equal to 55% of assets.
Contingency funds: He has Rs 80,000 lying in the bank and a liquid fund - equivalent to about 2.15 months mandatory expenses.
Health & life insurance: His employer has provided him health cover to the extent of Rs 5 lakhs. His life cover is Rs 13 lakhs. Of this, Rs 10 lakhs is in a term plan and the rest are investment oriented policies.
Savings & investment: Apart from Rs 80,000 in near cash assets, he has Rs 3.50 lakhs in stocks, Rs 45,000 in an equity mutual fund, Rs 1.10 lakhs in EPF/PPF, Rs 70,000 in Post Office schemes and Rs 40,000 in others.
Debt:equity ratio is 44:56.
Fiscal analysis: Good inflow. Expenses are very low. Almost Rs 52,000 can be saved every month. Health insurance is sufficient. Life insurance currently is sufficient however from long term perspective additional cover is recommended. More funds are invested in equity. This is favorable if there was no outstanding loan. EMI payout is within permissible limit but overall liability in comparison to assets is little high.
WAY AHEAD:
Contingency fund: Increase contingency reserve to Rs 90,000. Upon completion of education loan, bring it down to Rs 75,000.
Health & life insurance: Health insurance is sufficient. Carefully read all the terms and conditions of the cover provided by employer. While life insurance is sufficient now, responsibilities will keep adding up. Therefore, opt for additional cover of Rs 75 lakhs through two-three different term plans.
Loan management: Liquidate equity and pay off education loan. While psychologically this might be difficult to implement, currently there is double loss. On one end, the equity market is generating negative returns; on the other, there is interest burden on the education loan. By paying off loan, losses from both will be cut off.
FINANCIAL GOALS:
Parental responsibility: There is surplus of Rs 52,000 every month. Therefore, after increasing the contingency reserve, set aside funds in a debt fund. Create a corpus of Rs 1 lakh. While supporting parents can be done from the regular income, this corpus will be a buffer.
Home purchase: Delay purchase of home by two-three years. Try and save as much as possible in these years. Ensure amount to be borrowed is the lowest possible. Also, avoid borrowing for a tenure greater than 10 years.
PLANNER'S EYE:
The 20s and 30s should be one's golden saving years. This is the time when family responsibilities are manageable. Most financial goals are more than a decade away. The mid-30s bring the big home loan. In the early 40s, parental responsibilities start cropping up; by the mid to late-40s children need funds for higher education and their marriage. Soon, we are in the 50s and just a decade away from retirement. Over the years, our income increases but so do our expenses. Therefore, anyone who starts saving early in life will always have an edge.
Rahul has started saving early. Also he is focused onto equity. Lastly he is saving more than 50% of his inflow. All this will reap results. These are his big strengths. He should ensure that he borrows as little as possible and for the shortest possible time.