Case Study 1- How to do Financial Planning in Real Life?

Financial Planning of Tiwari Family

Mr. Manish- 37 Years

Mrs. Mayuri- 34 Years

Ms. Aarya (Daughter)- 6 Years

Reside In – Pune, Maharashtra

Net- Annual Income– Rs.10.70 lakhs

Rating- 4/10

Family Profile

Manish Tiwari has a job as an Assistant Manager at Infosys Ltd. His wife stays at home to take care of the household. They’re thinking about saving money for her education and financial planning for their retirement.

The Tiwari family earns a good amount of money, but they’re not managing it well. They spend too much on buying electronic gadgets and shopping online. On top of that, Mr. Manish has been investing in stocks for a year and has already lost almost 50% of his money. Right now, they’re able to save 47% of what they earn each year, which is a good thing. But they need to be more careful and disciplined with their spending and investments.

FINANCIAL GOALS

1. DAUGHTER’S EDUCATION FINANCIAL PLANNING (2035 to 2038, Inflation 10%)

Current Value– Rs.10 lakhs

Future Value– Rs. 28.53 lakhs

2. DAUGHTER’S MARRIAGE FINANCIAL PLANNING (2045, Inflation 10%)

Current Value- Rs.10 lakhs

Future Value– Rs. 74 lakhs

3. RETIREMENT FINANCIAL PLANNING (2047, Inflation 7%, Life Expectancy: 85 years)

Current Annual Expenses: Rs.3.60 lakhs (Required expenses at retirement)

Future Annual Value: Rs. 17.06 lakhs

Corpus required: 4.25 crore

INVESTMENTS: Approximately Rs.1.2 lakhs reside in the savings account, alongside Rs.2.80 lakhs securely deposited in a bank fixed deposit. The EPF balance stands at around Rs.3.5 lakhs. Additionally, investments in equity mutual funds total approximately Rs.60,000, while shares hold a value of about Rs.2 lakhs.

PRESENT FINANCIAL PLANNING STATUS

EMERGENCY: Sufficient funds in savings and fixed deposits to cover emergency need.

HEALTH COVER: His employer provides a family floater plan with a coverage of Rs.2 lakhs, but it is deemed insufficient.

LIFE INSURANCE: The coverage is insufficient. Manish is covered for Rs.5 lakhs through a traditional LIC money-back policy maturing in 2028 and an LIC Jeevan Anand Policy maturing in 2029. However, this coverage is inadequate given his responsibilities. The total annual premium amounts to Rs.28920.

INVESTMENT: Insufficient. Despite mandatory EPF deductions and a Rs.5000 SIP, both significant amounts, Manish has not been able to accumulate enough savings or investment.

LIABILITIES: Currently, there is no liability.

FINANCIAL PLANNING RECOMMENDATION

EMERGENCY FUND: The funds in both the savings account and fixed deposit cover six months’ worth of expenses. It’s advisable to ensure that the fixed deposit is held in a flexi fixed account, allowing withdrawals via ATM card.

LIFE INSURANCE: Manish requires insurance coverage of Rs. 1 crore. Opting for a 23-year term insurance plan at an annual cost of Rs. 25,000 is advisable. Since both of his current policies are nearing maturity, he may choose to maintain them. However, it’s not recommended to seek life cover for his wife.

HEALTH INSURANCE: He should get a special health insurance plan for the whole family. It covers up to 10 lakhs in medical expenses. It will cost an extra Rs.20,000 each year, but he can deduct up to Rs.25,000 on taxes under section 80D.

ACCIDENT INSURANCE: A personal accident insurance plan is suggested. It gives you coverage of 30 lakhs, with 20 lakhs set aside for Temporary Total Disability (TTD). It costs 6,000 rupees every year. This insurance will pay you if you get injured or can’t work for a while because of an accident.

FOR FINANCIAL PLANNING

DAUGHTER’S EDUCATION (2035 to 2038): LIC both policies maturity amount to be reinvested in aggressive balanced mutual fund and additionally need to start Rs.4000 SIPs to achieve this goal.

DAUGHTER’S MARRIAGE (2045): Start an SIP of Rs.10, 000 a month in 2 balanced mutual funds

RETIREMENT FINANCIAL PLANNING (2047): Manish want to retire at their native place. They have their parental house. EPF corpus of 1.96 crore (assuming 5% increase in basic salary a year) and existing mutual fund portfolio Rs.1.13 crore (MF Rs.60k + Shares Rs.2 lakhs + Monthly SIP Rs.5000)

Sell existing shares and reinvest in mutual funds for 2 lakh. The surplus after monthly expenses is 26,000. Invest 20,000 – 10,000 in large-cap fund & Flexi cap Fund, 6,000 in Aggressive balanced fund and 4,000 in gold mutual funds.

Rate of return assumed:

8% in EPF and debt funds, 12% in equity funds 

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