Start by planning early. The ideal time to start planning is when you child is born. School fees and other child upbringing expenses may not be a big burden, but it’s for your child’s college, higher studies and marriage that you would probably need to plan and save in advance. The reality is that when you start planning for your child early, you have time on your side such as around 18 years before your child is ready to off to college. Taking such a time period and having similar thought in mind, Delhi-Noida based Mr. Rajesh Gupta (34) and his wife Nidhi (32) want to secure the future of their child, by planning for his education and marriage. It all depends on the right way they plan out things.

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The couple have 2 year old son, Jaydeep and decided not to have any more children so that they can devote their time and financials to their only son.

Let’s take up their case and see how proper financial plan can help for their son’s education and marriage. Rajesh is 34 years old from Noida and earns roughly Rs40,000 per month. His wife Nidhi, is a school teacher. She earns about Rs20,000 per month through school and tuitions. Thus, both having a total family income of Rs60,000 per month. Their averagely monthly expenses (including annual insurance premium of Rs 10,500) are approximately Rs35,000, they could have a surplus  of around Rs25,000 on a monthly basis.

The couple has their investment assets include mutual funds, Public Provident Fund (PPF), EPF and post office investments, with bank balance close to Rs 20 lakh. They hold gold worth Rs10 lakh and a car worth Rs 2.5 lakh. Rajesh has an insurance cover for Rs 3 lakh only and has no any other liabilities. 

 Financial Goals

Since, they are very concerned about their Son’s future. So, they want to plan for his graduation at the age of 18 years’ worth  Rs10 lakh, post graduation at the age  of 21 years worth  Rs12 lakh and marriage at the age of  25 years’ worth Rs15 lakh in today ‘s value.

 Emergency Fund

Firstly, Rajesh should keep at least 4 months’ expenses i.e .Rs. 1.40 lakh as liquid fund and 2 months’ expenses Rs 70,000 in bank account as emergency fund to cope up any short-term unexpected event like loss of job, significant medical expenses, home or auto repairs etc. Suddenly there can also be some trip, some eating out, some expenses relating to the kid’s school or something you’ve never dreamed of.

Life Insurance

Rajesh has considerably under-insured with cover of just Rs3 lakh whereas he needs to additional term cover of at least Rs 67 lakh to ensure that his regular needs are protected. His wife, Nidhi should also buy term cover of Rs 30 lakh as income replacement till her retirement age. Both should also buy a critical illness plan of Rs 10 lakh as separate covers.

Medical Insurance

A health insurance policy provided by the employer covers Rajesh’s family up to a sum assured of Rs2 lakh. He should take a another family floater medi-claim policy to enhance the cover his entire family for a sum assured of Rs4 lakh-  Rs5 lakh which would take care also while switching the job or even in after his retirement.

Investments Analysis

Goal Funding Map

Financial Goals

Funds Needed

Goal Year

Years for Goal

Future Value*

Monthly Investment Required

Graduation

 10 Lakh

2029

16

45.95 lakh

8,418

Post-Graduation

12 Lakh

2032

19

73.39 lakh

9,062

Marriage

15 lakh

2036

23

1.34 crore

10,034

Total

27,514

*(Child’s education and marriage goals inflated at 10% p.a.)

 According to goal funding map, Rajesh has earmarked Rs 45.95 lakh for his child’s education (graduation) in 2029 and Rs 73.39 lakh (post-gradation) in 2032. He also wants to set aside Rs1.34 crore for his child’s marriage in 2036. Child’s education and marriage goal inflated at 10 percent p.a.

Rajesh could meet all his child goals if his saving earns a rate return of 12 percent p.a. but he needs to make a total investment of Rs27,514 per month to achieve just three goals, whereas they have already surplus of Rs25,000 per month. But he wants to know how he can plan for their child’s goals with paucity of surplus fund. In that case, Rajesh can start SIP for graduation and post-graduation goals worth Rs17,480 p.m. immediately but unable to start a SIP for the child’s marriage goal due to insufficient funds. Being the least priority of marriage goal, he can start a SIP of Rs14,567 per month after 3 years while keeping increase their salary by 10% per annum every year.

After planning for the child’s education goal, their total investment is just Rs 17,480 per month while they have surplus of Rs 25,000 per month. So, after allocation of child’s education goal, they can still invest Rs 7,520 (Rs 25,000 – Rs 17,480) for other financial goals such as retirement, vehicle, vacation or any other financial goal they might have.

We did not utilize any of their current assets as cash in bank is kept for contingency purpose, physical gold is in the mostly gold ornaments form and aligned to child’s marriage goal and EPF & PPF account can be mapped to other financial goals such as retirement.

Even though the couple know their surplus amount is insufficient to fund for their child goals leaving aside all other goals, but proper planning helped them not only to plan for their child goals but also plan for other financial goals like retirement and vacations.

Recommendations

Rajesh’s money savings are around Rs 25,000. He should invest at least 70-80% percent of these in equity –based mutual funds through systematic investment plan (SIP) to ensure his portfolio is 70:30, equity and debt. He should choose two large-caps, one mid-cap and one balanced fund with a good track record. He should continue to contribute towards his PPF account and aligned with his retirement goal and invest some money towards long-term debt.  He should look at tax planning in a holistic manner, though he is investing about Rs10,500 in insurance premium.

Key Learning’s from this case study

Like Rajesh, you should have clarity and quantify your goals and plan for them accordingly. All future goals should be factored in expected inflated value while funding for your financial goals. You should also factor in the expected rise in the future income while planning for your financial goals. You don’t need to plan for all goals immediately as some of them can be deferred till the time your income increases. If your goals are not achievable even after projecting future increase in income, then you should review and decrease the amount of your least priority goals.

Thus, the master key to achieve financial goal is to plan early and review periodically.

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Suresh Kumar Narula

SEBI Investment Advisor, Founder & Principal Financial Planner at Prudent Financial Planners
Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in
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