Got a question about your money? What you should or should not do with it?
Our expert Devang Shah has the answers.
I am a 25-year old IT professional. My wife and I have a monthly take-home salary of about Rs 18,000 each.
My wife has to pay around Rs 6,000 every month for the house she purchased prior to marriage.
I am planning to do some freelance work in advertising to boost my income. How do we manage our finances?
- Adi
Hi Adi,
The best way for us professionals (please note the 'us') to manage our personal finances is to keep it simple.
We cannot afford to make it complex because time is our true asset and we can't fritter it away on unproductive complexities.
As a first step I would encourage you to set up a Systematic Investment Plan. This will entail investing a fixed amount every month in a mutual fund.
Do so with a couple of diversified equity mutual funds (funds that invest in the shares of companies of various sectors) and one or two floating rate debt funds (funds that invest in fixed return instruments where the interest rate is flexible and not fixed).
HDFC Equity Fund and HSBC Equity Fund are examples of the former and Grindlays Floating Rate Fund and DSP Merrill Lynch Floating Rate Fund are examples of the latter.
This process will give you a handle on how much you can save on a regular basis.
Next you need to crystallise what you want to save up for, how much and when that event is likely to happen. The most important step in your plan is knowing where you want to go and that's what this will do for you.
At some point, you also need to get your life cover needs and other insurance needs evaluated. As always, I will goad you to get this done from a fee-only financial advisor, not from someone who wants to sell you a policy.
Also consider the possibility of tax savings by juggling who repays the loans between you and your wife. Speak to your tax advisor.
Please don't shy away from paying for good advice. There is really no 'free' advice. Good advice can really make a tremendous difference to your financial well-being.
Age
27
Monthly take-home salary
Rs 11,000
Investments
Mutual fund SIPs: Rs 500 per month each in UTI Dynamic Equity Fund and SBI Contra fund (dividend option in both cases).
Post office recurring deposit: Rs 3,000 per month.
Goals
1. Buy a house worth Rs 10 lakh (Rs 1 million) within three years
2. Take my family for an overseas holiday within five years
3. Save for my child's education and marriage
I recently got married and have no dependents as of now.
- Vidhya Ramachandran
Hi Vidhya,
I truly appreciate the dreams that you hold for your near and dear ones. At the same time, I nudge you to articulate your plans on paper so that you will be in a better position to understand when and how you will accomplish these.
If your savings of Rs 4,000 per month earns you 8% per annum for the next three years, you will have about Rs 1,62,000 with you.
That might not be an adequate down payment for a house of Rs 10 lakh.
The Equated Monthly Installment (amount you pay every month towards the loan repayment) on the home loan would be in the whereabouts of Rs 8,000 per month.
And, the overseas trip five years down the road might cost about Rs 5,00,000 to Rs 6,00,000 for a family of four.
Here are some questions I would like you to answer:
I am sure, eventually you will achieve, what you set out to do.
However, setting practical milestones will ensure that you stay on track to accomplish your dreams.
Best of luck.
Is it wise to have more than one life insurance policy?
- Mithi Chinoy
Hi Mithi,
If the cover that you 'need' is large, having life covers from a couple of insurance firms might not be a bad idea.
Another situation where you may want to have more than one policy might be where there is a likelihood that you might not require the full cover after a period. So if there are two policies, you could let one lapse.
A caveat would be that it involves more procedures to get more policies and could cost more.
Most importantly, you need to evaluate your 'need' correctly. I place a lot of importance to getting your life cover need evaluated by a competent fee-only (non-sales) financial advisor.
Illustration: Dominic Xavier
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