Financial Plan for differently abled dependents

As a family, we go through a cycle where an individual first gets married, has children, for whom we plan to provide good living and education, make them independent- both emotionally and financially and then look forward to our own sunset years with our spouse. For every stage of life we plan and try to match our income with the respective goals. However, there could be situation where an individual is incapacitated to be on his own or to lead an independent income life;thus our responsibilities do not end. The discussion in this article mainly focuses on dependency due to certain physical or mental disabilities.

As per Person with disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995, a disability under the act is defined is person suffering from:

• Blindness;
• low vision;
• leprosy-cured;
• hearing impairment;
• loco motor disability;
• mental retardation;
• mental illness

When we have a dependent in our family, who suffers from this kind of disability we need to make provisions for the dependent in our working age, to ensure that they are never financially weak at any point of their life. So, when we are planning for the financial security for the dependent, we need to take care of following aspects:

·   Cash flow Amendment – When a disability is discovered at an infant stage, it is natural that as parents we want to manage all the responsibilities of your child however, as the child grows he might need external support like a medical attendant or home maid to attend to their needs. So, when we plan our expenses we need to include expenses like medical expenses, expensive treatments and external help or even consider their survival expenses as they may outlive you.

· Plan for it as immediate goal- Treating the dependency survival goal is similar to our own retirement goal, which is equally important and needs to be prioritized over any other goal planning.  

· Select a right guardian – Appoint a third person as guardian who can take decisions in absence of parents. This will create a buffer in case of any important decision to be taken if we are not around.The decision should be made legally and well documented to avoid mayhem in later life. So, if you have made provisions for the dependent you are ensured that there will be someone to execute the plan for you. It is important to note that after 18 years of age, if you need to provide for adult, you need to apply for guardianship even if you are his parents.

·  Develop a business for them- Disability doesn’t deter any human being from adapting alternative skills to sponsor their own expenses. It is recommended that you work towards developing their other sensory skills and identifying them at earlier stage. Today, there are various provisions made by government to reserve work quota or give concessional loan rates for differently abled people. It is recommended to be an active member of various self help groups of people suffering of similar disabilities and join hands to start a small venture. This will ensure that a feeling of self dependence is created in the dependent and a life time regular income is generated.

In the next article, we will discuss the various areas where an individual can invest to save for his financial dependents or possible means to secure their lives.

 

Regards,

Saarthi Financial Planners
www.saarthifp.com

Financial Planning for Irregular Income

Planning for goals is easier when you have regular source of income but could be difficult in case if you have not so regular or fluctuating income. This could include fluctuating income earnings made by professionals, artists, writers or any business owners. This could affect not only planning for your future but also the current cash flow management. So, how do such people plan for their financial goals?

Main areas of focus for financial planning for irregular income

a)Safeguard your Contingency funds – As a thumb rule, every financial plan requires the client to save for at least three months of their monthly expenses. However, for irregular income earners it is advised that you make a provision for at least a year or more to avoid any disruption in your regular family expenses. These expenses should focus on pure living expenses – including food, education, health, premiums, conveyance and tax costs. Beyond these lifestyle expenses need not be provided for a year’s time frame but around six months is sufficient.

b) Never skip your Premiums- It is essential to make sure you don’t skip or miss any of your life or general insurance premiums. As the risk insured if actually occurs could make a dent into your survival amounts.

c)Follow "Lump sum – Regular Periodic investment" mode – Invest the lump sum amount available during your income days in a earning asset for a while and then reinvest it in a systematic methodology into better yielding investments. It could get a little expensive than direct monthly investment but in long term could yield better returns. One can even manually, do the above arrangement to make the costs unaffected. It is recommended that if one is unsure of the investment avenue, he should use liquid funds to temporarily park your funds. Like if you receive Rs. 3 lakhs at any one point you can invest the same at one go in liquid fund / savings account and then invest them regularly Rs 25,000 monthly as per desired goal time frame.

d) Goal Planning- While planning the goals i.e. assigning monetary value to the goals and giving time frame to it, it is important you understand that although the goal could be years away your earning opportunities could be limited or low.  So, make the amounts desired as realistic as possible. If possible plan for essential and leave the discretionary goals for later planning.

e) Back up to irregular income – In case of irregular income, it is best to give a time frame to improved cash flow so that it helps you adjudge the situation, you cannot depend on this mode of working for a long time. The contingency funds also have a shelf life and would certainly evaporate slowly. If you don’t desire a backup income source, you need to trim down your lifestyle spending.

f) Stay debt free- It is high tendency to over spend during zero income days and then balance it out with credit facility available around you. People either ruthlessly use their credit card or personal acquaintances to fill the gap between need and funds. This is a viscous cycle and lands one in huge debt web. It could even give you a bad credit score.

g)Repay any loans – In case if you are repaying any loans taken for your asset purchase then repay at earliest or make a provision of the same in your regular living expenses. It is not wise to loose the asset midway due to unpaid installments. Try to speed the payments on receipt of any huge sums interim.

Overview of an ideal Financial Plan

In last few weeks, we have been discussing the various financial goals of a family. We also understood the probable areas where one can invest or save to achieve or fulfill these goals. So, now lets’ get a wholesome picture that if an individual wants to plan his financial goal at earliest can he achieve the same? What should be his monthly income and expenses ratio?

For our example we assume an individual at his age 25 starts his financial planning. He mentions to us the following:

Goal List @ age of 25	Goal Amount -Future Value Rs.	Year to achieve from now	Age at the goal Year
Marriage	2,00,000	2	27
Home	75,00,000	7	32
Home Décor	5,00,000	7	32
Children Education	20,00,000	20	45
Children Marriage	10,00,000	27	52
Retirement	2,00,00,000	35	60
Vacation	4,00,000	From age of 30 every 2 years up to 60 years

Savings required per month towards goal fulfillment (all in Rs.)

Goal	Between 25 -26	Between 27 -30	Between 31- 35	Between 35 -40	Between 41-45		Between 45 -50		Between 51-55
Marriage Goal	8,000	Amount collected at age of 27 Rs.2,11,079/-. Since tenure is two years, recommended investment in bank RD.
Home Purchase – Collection of Down Payment	10000	13000	·   Up to age of 32 – Rs. 25,000 to fund down Payment of Rs 25 lakhs from collected funds, ·   Further loan** of Rs. 50 lakhs for tenure of 25 years @11.25pa, EMI of Rs.50,000 up to age 57.
Home Décor	5000	5000	Amount of Rs 8 lakhs at age of 32
Retirement	5000	10000	10000	10000	35000	50000		Amount of Rs.2.40 crore collected by age of 50
Children’s Education			9,000	9,000	Amount of Rs 28 lakhs collected by age of 45
Children Marriage							10000	30000 –Amount of Rs.18 lakhs collected by age of 52
Vacations			5500 from age of 32	5750	10000		10000	10000

**- with anticipated monthly surplus from age of 45, one can looking at closing down the loan

Assumptions used in this working to achieve these goals:

a)   The individual is residing at his parents’ home at beginning of his career and doesn’t have any financial responsibilities towards them and the future desired home is in tier 1 city.

b)   There is a regular salary increment

c)   For all goals that are beyond two years, investments are made using monthly equity investments via SIP methodology fetching a monthly rate of return of 1%.

d)   The individual is ready to work till 50-55 years of his age.

So, in order to achieve these goals, we need to get a monthly income and expense ratio. Since, high earning and/or low savings are not sufficient to reach the goal amounts.

Required Income - Expense Ratio (all in Rs.)

Age	25	30	35	40	45	50
Income pm	40,000	65,000	1,15,000	1,75,000	2,25,000	2,75,000
Monthly Expenses* as % of income	30%	30%	35%	40%	40%	40%
Surplus pm	28,000	45,500	74,750	1,05,000	1,35,000	1,65,000
Required Life Cover for working life	96,00,000	1,56,00,000	2,07,00,000	2,10,00,000	2,70,00,000

*- excluding home loan EMI

Beyond this, any annual bonus received or any lump sum earnings should be earmarked for closing the outstanding liability.

Note: This is just an example to showcase the benefits of planning for your goals at early stage. The actual planning could defer with client's requirements and preference.