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| Financial Planning: Gaurav Mashruwala |
| Business Standard / Mumbai Sep 09, 2010, 00:43 IST |
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I am 25 years old. I work as an assistant director for film projects. My income depends on the project I am working on. For instance, I earn Rs 45,000 a month while working on a film, but made just Rs 25,000 last month while working on an advertisement. I am planning to get married next year and spend Rs 4-5 lakh for the same. I will use my savings of Rs 2 lakh. The rest will be borne by my parents. After marriage, I plan to buy a house worth Rs 20-25 lakh through a home loan. I want to build a corpus as a back-up for repaying the loan. My expected monthly expenses after marriage will be Rs 25,000-30,000. My fiancé is working as an intern and earns Rs 12,000 a month. If she gets confirmed next month, she will start earning about Rs 20,000. How should I plan my finances, given the irregularity of my income?
There are a few important things you should focus on before considering long-term investments. First, ensure sufficient funds in the contingency reserve to meet routine expenses during volatile income periods. Ideally, set aside funds equivalent to three months’ expenses.
Get health insurance worth Rs 3 lakh each for yourself and your fiancé.
Start investing the surplus available every month in a mutual fund that invests about 15-20 per cent in equity and the rest in debt. Do not opt for a systematic investment plan, as your inflow is uncertain. Keep making ‘additional purchase’ transactions based on the surplus available every month. Also, invest the Rs two lakh saved for home purchase in the same scheme. The corpus created in this fund can be used to make down payment for the house.
Last, invest the funds set aside for your marriage in a fixed deposit. Interest income from fixed deposits is taxable, but since your tax slab is in the 20 per cent category, your post-tax returns will not erode substantially.
Me and my husband are planning to renovate our house next year. According to the contractor’s estimates, our expense will be around Rs 3 lakh. Our collective monthly income is Rs 65,000. Our monthly expenses are Rs 20,000. Outflows towards investments, mainly public provident fund and equity-linked savings schemes, are Rs 18,000 and the equated monthly instalment for the home loan is Rs 12,000. The monthly expenses and investment amounts are not absolute and can change. The in-hand cash left after meeting all expenses is Rs 15,000 a month. How can we invest this over the next one year to reach our target amount? Or, should we consider a loan to meet the renovation expense?
Given this data, it seems you will be unable to fund your home renovation expenses completely on your own within a year. You have two options, either delay the renovation by about six to eight months and create the required corpus. Or, reduce the scale and carry it out in a phased manner. Avoid borrowing money for home renovation unless there is an urgent need to do so.
For a year, invest surplus funds in debt-based mutual fund.
I am a 52-year-old man and work for a public sector company. I plan to retire by the end of this year. On retiring, I will get a lump sum of Rs 25 lakh. At present, I have invested Rs 25 lakh in debt and another Rs 7 lakh in cash. I will finish my home loan repayment in a year. My current monthly expense is Rs 35,000. I will start receiving pension (Rs 20,000 a month) once I am 60. How should I invest this lump sum to get sufficient returns to meet my expenses and also build an emergency corpus?
You have not given the details of the outstanding home loan and the health insurance, if any. We also need to know your plans between now and when you touch 60.
Under normal circumstances, a retired person should focus on three aspects — continegncy, regular income and growth.
Your contingency fund should be equivalent to about six months’ expenses.
However, in case of specific health conditions, this reserve should be increased appropriately.
Invest in instruments that generate regular income for the next three to four years. The rest should be invested in growth-oriented asset classes like equity and gold.
In case your existing health insurance is not sufficient, purchase the same on a priority basis.
The writer is a certified financial planner
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