Teach kids to earn their pocket money

Teach kids to earn their pocket money
Financial planner
Gaurav Mashruwala
finds a family that is astonishingly wellorganized


When he was a child, K T Markose had to earn his pocket money. His father would pay him for doing household chores. The rates were pre-decided—25 paise for going to the flour mill, 50 paise for more intense work, and so on. His earnings could be spent on buying a cricket ball or eating ‘gola’. However, he was told to track all expenses meticulously.
Today, at 28, Markose, is grateful to his parents for inculcating what he calls his diary habit. Born and raised in Mumbai, Markose did his BE (Mechanical) and went on to further educate himself in pre-sea training. He is now a fourth engineer in the merchant navy, a dream he had visualized since he was in the ninth standard. His father is a personnel officer with YMCA. His mother retired as a nurse and his younger brother, Skaria, is studying.
Markose’s wife, Trupti, is from Vadodara. She has done her MA in engineering and is a lecturer in an engineering college. They got married exactly a year ago.
What are they saving for?
They want to purchase a house worth Rs 45 lakh at the earliest. Markose wants to pursue further studies in about two years—which will cost Rs 10 lakh. Next, they want to set aside Rs 4 lakh for their parents. When they have children, they want to create a corpus of Rs 10 lakh for their marriage and Rs 15 lakh for their education. They also dream of a car worth Rs 5 lakh and foreign travel.
Where are they today?
Cash flow: Annual inflow from all sources is about Rs 9 lakh, though this is not consistent because Markose is not always sailing. The outflow is about Rs 3 lakh, which goes towards taxes, insurance premium, mandatory savings and household expenses. Net worth: Total assets are worth Rs 11 lakh. Of this, Rs 9 lakh are in a savings account. Jewellery is worth Rs 2 lakh. The couple does not have any liabilities.
Contingency fund: Funds equivalent to about 36 months’ household expenses are in a savings account.
Health and life insurance: Each family member has health cover of Rs 1 lakh. Markose also has some benefit from his employer. Trupti’s life cover is worth Rs 3 lakh (investment-oriented polices). Markose does not have any life cover.
Fiscal report
They have a decent income level. Inflow is not constant, but expenses are well within means. Large funds are lying idle in savings bank account. There are no investments, nor liabilities. Health insurance is low. Markose does not have life cover.
The way ahead
Markose is in the merchant navy and sails for eight-nine months in a year. He should, therefore, give his general ‘power of attorney’ to his wife and/or any other family member. This will be useful whenever the need arises to communicate with income tax department, banks, or any other institutions.
Contingency plan: They should keep aside funds equivalent to six months’ mandatory expenses. Since inflow is not stable, a larger reserve is recommended. Total reserve to be set aside is Rs 1.50 lakh. Of this, they should keep Rs 1.25 lakh in a savings bank linked to a fixed deposit and the balance in cash at home.
Health and life insurance: First, they should get details of health cover provided by Markose’s employers. Next, they should ensure that every family member is covered for at least Rs 3 lakh, increasing this to Rs 5 lakh each in the future.
Markose is the main earning member. Therefore, he must have life insurance, through term plans, worth Rs 1 crore.
Planning for financial goals
Home buying: Based on an annual income of Rs 9 lakh, the couple will be able to borrow about Rs 36 lakh from a housing finance company. Further, in the next 12 months they should save about Rs 6 lakh. The balance of Rs 3 lakh can be drawn from their savings account. They should keep aside Rs 3 lakh in a debt-based mutual fund till the house is bought.
Higher education: If they buy their home, then taking a sabbatical for higher education is not possible as the couple will need regular income to service their home loan. Therefore, this goal will have to wait till the home loan is paid back.
Parental responsibilities: After home purchase, they should set aside Rs 50,000 every month for eight months in a debt-based mutual fund. The corpus so created can be utilised for meeting financial responsibilities towards parents.
Children’s education and marriage: After creating a corpus for parents, they should invest Rs 35,000 every month in an index fund to meet longterm expenses of children’s education and marriage. Surplus left after investing for children should be utilised to aggressively pay off the housing loan. Once this is paid back, Markose can pursue higher studies. They should ensure that, at the time of taking this sabbatical, there is no debt burden on the family.


THE PLAN: Trupti and Markose need to save and invest aggressively to meet their life goals