Understand the necessity and desire.
I am 35 and work in an aviation firm; my wife, 32, is a home maker.We have a three-year old daughter. My 60-year old mother is a dependent. Despite earning a decent income, I find it hard to generate a surplus. How should I go about paying off my loans and save for my child’s education and my retirement?
Rupesh Mathur
Understanding the difference between necessity and desire is all it takes to generate a surplus. You’ve availed a mortgage loan and a personal loan to fund over 60 per cent of your home cost; this is imprudent. The interest cost on personal and mortgage loans is far higher than the home loan and both are not eligible for tax deduction. You could have taken the home loan up to the permissible limit and, with your monthly surplus, paid a higher EMI.
Considering your family size, monthly expenses of ?60,000 are very high. Now that your personal loan is about to close, pruning your monthly expenses will help you save for other goals. With rates expected to trend down, don’t close your home loan now. With prudent asset allocation, your can earn returns higher than the home loan interest. Since you have exhausted the investment limit under Section 80C, the return on insurance will be lower than inflation.
Hence, reduce your contribution to insurance and invest in an equity mutual fund. Assuming you and your spouse require ?25,000 every month currently, at an inflation of 7 per cent, the cost will be ?1.18 lakh, 23 years from now.
For this, you should have a retirement corpus of ?2.8 crore, which should earn 1 per cent higher than inflation. You need to save ?19,200 every month,including your/ employer’s EPF contribution. Invest 60 per cent of this amount in equity mutual fund and the balance in debt, which includes EPF. Buy term insurance for ?1 crore.
The writer is a financial planner and founder of myassetsconsolidation.com. Send your queries to blinefp@gmail.com