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Family finance: Mahajans need to reduce debt to achieve their financial goals

Ahmedabad-based Mahajan's goals include building an emergency corpus, saving for their kids’ education and weddings, and their own retirement.

, ET Bureau|
Last Updated: Jun 24, 2019, 06.30 AM IST
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Mahajans will have to put off some goals, but will reach them after a salary hike.
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Prasad and Pallavi Mahajan, 35 and 30 years, bring in a combined monthly salary of Rs 1.12 lakh. They stay with their two children, aged seven and three, in their own house, in Ahmedabad. Their portfolio includes real estate worth Rs 27 lakh, cash of Rs 25,000, equity worth Rs 2 lakh in the form of mutual funds, and debt worth Rs 5.5 lakh in the form of EPF, PPF and NPS. They currently have a high debt of Rs 30.1 lakh, which includes home (Rs 17.5 lakh), car (Rs 2.8 lakh) and personal (Rs 9.8 lakh) loans. They are paying an EMI of Rs 57,180 for these. Their goals include building an emergency corpus, saving for their kids’ education and weddings, and their own retirement.

Financial Planner Pankaaj Maalde suggests they start by rescheduling their debt because of expensive personal and car loans. They can do this by reworking their home loan or taking a top-up loan of Rs 30 lakh. At 9% interest, it will result in an EMI of Rs 25,200, and they can repay the personal and car loans with the additional loan amount. This will free up Rs 31,980 which can be used to meet goals.



Cash flow


The couple can build the contingency corpus of Rs 4.26 lakh, which is equal to six months’ expenses, by allocating their cash and saving the entire surplus for 10 months. This should be invested in an ultra-short duration fund. They can start investing for their goals only after the emergency corpus has been built. The Mahajans want to save Rs 42 lakh and Rs 55 lakh for the kids’ education in 11 and 15 years, respectively.

How to invest for goals

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They can do this by starting SIPs of Rs 15,500 and Rs 11,000 in diversified equity funds. For their kids’ weddings in 18 and 22 years, they will need Rs 34 lakh and Rs 44 lakh, respectively, but will have to wait for a rise in income to start investing for these. For retirement, they will need Rs 4.2 crore in 25 years, and can assign their EPF, PPF, NPS and mutual fund corpuses. In addition, they will have to start an SIP of Rs 13,000 in a diversified equity fund, and invest Rs 500 a year in the PPF.

Insurance portfolio


For life insurance, Prasad has a term plan of Rs 50 lakh. Maalde suggests he continue with it and buy an additional Rs 1 crore term plan, which will cost Rs 1,250 a month. For health insurance, they have a family floater plan of Rs 5 lakh and critical illness cover of Rs 10 lakh. Prasad also has a Rs 20 lakh accident disability plan. Maalde advises he buy a Rs 15 lakh top-up family floater plan, with a deductible of Rs 5 lakh, which will cost Rs 833 a month.

Financial plan by Pankaaj Maalde Certified Financial Planner

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