Bring expenses inline with income to create wealth

I ,Natesan,aged 35 and my wife is home maker. We have two children aged 6 and  2.5.After meeting my house hold expenses currently I have a surplus of Rs 20000.I have a land in which I am planning to construct a house and planning to rent it out. The total cost of the project is Rs 20 lakh, for which I may take a loan for Rs 15 lakh.I wish to meet the EMIs through my rent. My current investments are in Chit fund I save monthly a sum of Rs 6,000 and the matuity value is Rs 3.0 lakh,SIPs in two MF schemes for Rs 4000 each and Rs 1000 in PPF.

I look forward to create a wealth of Rs 1 crore by end of 15 year for my daughter education and marriage (Rs 25 lakh for each goal). Do guide me how much and where to invest. Is there any other better option than SIP?

After meeting the education and marriage needs I wish to save for my retirement. My current monthly expenses are Rs 10,000.I may retire in another 23 years. Based on my family history I may live up to 80 years.

Solutions: With your current surplus reaching all goals are feasible, provided your expenses are in line with the future income. With children’s are too young, you may reign over your expenses, but over the year’s if the there is a gap between your income and expenses it might affect your savings. Besides that since you have stated that you wish to pay your home loan EMIs with your rental income we have not factored the same in our calculation.However,we have apprehension that your anticipated rent of Rs 15,000 will be a little short of your EMIs for Rs 15 lakh.If you borrow 10.5 per cent for a tenure of 15 years your EMI will Rs 16581.However,if there is an increase in the interest rate at the time of borrowing it may further reduce your surplus. With maturity of chit fund better try to reduce your liability.

Education: It’s always better to assign a goal for all your savings. For your elder daughter education to reach a corpus of Rs 25 lakh in 11 years you need to save monthly a sum of Rs 9200 and it should earn a return of 12 per cent. We suggest you to earmark your current savings in mutual fund towards this purpose.However, you need to increase monthly savings by Rs 1200 to reach the target.For your younger daughter if you save monthly a sum of Rs 5800 for next 264 at 12 per cent, you can reach the corpus of Rs 25 lakh.

Marriage: From now on you have 18 year and 22 year to reach the goal.If you wish to accumulate in 15 years, you need to save more and your current surplus is not sufficient. Alternatively if, you save based on the goal you can comfortable reach the target.

For your elder daughter you should save a sum of Rs 3300 for next 216 months and for her sibling you need to save a sum of Rs 1950 for 264 months. In both the cases you should earn a return of 12 per cent to reach the goal.

Retirement: Your current monthly household expenses of Rs 10,000(Rs1.2 lakh) inflated at 7 per cent at your retirement in 2034 your need Rs 5.7 lakh per annum.At retirement you should have a corpus of Rs 1 crore and it should earn inflation adjusted return of 2 per cent for the kitty to sustain till you reach 80. If you save a sum of Rs 6850 for next 276 month and it should earn a return of 12 per cent to target. Since you are the bread winner of the family its better protect all your goals with term insurance. You need to take risk cover for Rs 1 crore and the annual premium outgo will be Rs 13300.

Investment: Equtiy as an asset class time and again had beaten inflation in the longer run. So, saving through SIP is the best option.However, you can structure your portfolio with an asset allocation pattern of 70:20:10 in favour of equity, debt and gold.