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.