I am getting married in a couple of months. My fiance and I want to buy a car (up to Rs 5 lakh) two years from now and save Rs 5 lakh for kids three to four years later. We have Rs 5-6 lakh investments in fixed deposits and the public provident fund. We both are repaying a home loan each (EMI = Rs 18,000). Another important goal is to start prepaying in five to six years. How do we starting planning? We earn close to Rs 40,000 each.
One of the biggest challenges a newly-married couple face is to manage the cost of living. If you can cross this hurdle, the rest may fall in place.
We assume, here, that you will not spend more than 60 per cent of the amount left after the loan outgo. The amount would come to around Rs 37,200 per month. Due to the loan repayment and investments for tax planning, you may not have to think about income tax for the time being. Another pointer here is, since the interest component of the fixed deposit bears tax, further increase in investments should be planned wisely. The surplus should be invested in a balanced portfolio of 70 per cent equity, 20 per cent bonds and 10 per cent in liquid deposits.
Another logical assumption is that your combined earnings would grow at the rate of at least 10 per cent year-on-year over the next five years.
| A PLANNED APPROACH (in Rs) | |||||||
| Year | Income* | EMI | Income - EMI | Other Expenses** | Surplus | Returns | Savings |
| 1 | 960,000 | 216,000 | 744,000 | 446,400 | 297,600 | 0 | 297,600 |
| 2 | 10,56,000 | 216,000 | 8,40,000 | 504,000 | 336,000 | 32,141 | 665,741 |
| 3 | 11,61,600 | 216,000 | 9,456,00 | 567,360 | 378,240 | 71,900 | 11,15,881 |
| 4 | 12,77,760 | 216,000 | 10,61,760 | 637,056 | 424,704 | 120,515 | 16,61,100 |
| 5 | 14,05,536 | 216,000 | 11,89,536 | 713,722 | 47,58,144 | 179,399 | 23,16,313 |
| *Assuming the income grows at 10 per cent year-on-year for next five years **Other expenses are 60 per cent of the income for next five years | |||||||
Your aspiration of a car may be funded by a part of your existing investments. I am not sure why Rs 5 lakh would be needed for the kids. However, the provision can be created from your existing funds only.
The repayment of the loan gets tax benefits to the salaried individual. It is to be decided whether prepayment is advisable only after a careful study.
The writer is director, Gliese Consulting. The views expressed are his own. Send your queries to yourmoney@bsmail.in