For rental income don’t borrow and buy home.

I am 38 and work for an IT firm. My wife, 34, is employed and we have two sons aged 10 and 8. I own three flats — two are self-occupied and the third is likely to fetch a monthly rent of ?12,500. Suggest me a plan to manage my finances and to save for other goals.

Natarajan

Buying a home for rental income with borrowed money is not a great idea, as the rental yield will be very poor if you are in the 30 per cent tax bracket. You may consider selling your third flat before taking possession. Insurance may not be the best way to save for children’s education, as the returns can be lower than inflation. The maturity value of the insurance policies may be adequate to meet their graduation costs.

For your elder son’s post graduation, you will need a corpus of ?1.12 crore (?50 lakh inflated by 7 per cent annually). So, save ?28,400 every month and this should earn 11 per cent. Earmark your mutual fund SIP proceeds for this goal and, start saving once your monthly surplus increases. For your younger son you will need ?1.29 crore, so invest ?32,500 every month. If you sell the third flat, set aside the lump sum and the saving on EMI for this goal. Assuming household expenses of ?30, 000 now, you will need ?1.16 lakh every month after retirement. You need a corpus of ?2.73 crore, earning 1 per cent above inflation, to support you till you turn 80.

If you both work till retirement and if your EPF contributions grow at 5 per cent, the retirement corpus will be ?2.91 crore assuming 8.7 per cent interest.