Shyama, a designer in an architect firm in Bengaluru, wanted to plan her finances. Her cash flow and assets and liabilities are provided as below.

* She earns ₹1.8 lakh per month after taxes and deductions

* Her monthly expenses are limited to a maximum of ₹1 lakh and she wants to invest ₹70,000 per month with flexibility to increase or decrease.

* She has a cash balance of ₹60 lakh which she wants to invest towards her multiple requirements.

She intended to build an emergency fund for unforeseen expenses. She sought clarifications on the priorities of her financial goals. She is 37 years old and has a six-year-old son. She recently separated from her husband and did not expect any financial support for her son’s education and other needs. Her income may be sufficient to manage the family expenses, but the growing needs of her son, his education, their lifestyle, her own retirement and buying a house are beyond reach at this moment. She recently joined as a designerafter a career break of three years and may need some more time to prover her mettle in the job.

She was found to be conservative while investing and wanted to remain so in the near future.

Review and recommendations

* Shyama and her son are covered adequately through the employer-provided group medical insurance. She was advised to have a comprehensive medical insurance comprising a base policy and a super top-up policy. She was advised to review her medical insurance once in three years.

* She was advised to opt for a term insurance for a sum assured of ₹50 lakh, the amount which she wanted to accumulate for her son’s education. In case of her unfortunate demise, her son would be using the funds for his education through a trust set-up. She does not have any other financial commitments and does not require additional insurance. All her investments will also be managed through the trust to protect the interest of her son till he is 21.

* She was advised to invest her monthly surplus of ₹70,000 towards three specific needs — ₹ 20,000 for short-term needs and to address son’s educational needs for the coming years; ₹25,000 for her retirement and long-term needs (this was agreed to be increased with the increase in income every year); ₹25,000 towards her son’s undergraduate courses (any deficit will be funded with educational loan or based on the requirement at that point of time).

* She encashed her PF earlier. The total contribution to PF per month currently is ₹21,750, which may help her to accumulate ₹1.77 crore if she continues her employment till her age of 60 without accounting for any rise in PF contribution.

* Her cash balance of ₹60 lakh will be used towards three of her most important goals — ₹12 lakh will be reserved as emergency fund and parked in safe instrument with highest liquidity and access; ₹28 lakh to be invested with medium-time horizon towards house purchase (she will review her goal of buying a house after five-six years); ₹20 lakh will be invested for her long-term needs including retirement and post-retirement health needs.

* She has a conservative risk profile and wants to protect for inflation-adjusted expenses in the long run. After demonstrating the risk-return matrix of various asset-allocation strategies, she agreed to our suggestion of 20 per cent in equity and 80 per cent debt asset allocation for the next five years. This conservative approach will be reviewed after four years. She opted for a basket of products from mutual funds, NPS, PPF and fixed deposits for her various needs.

Her main objective was to save the surplus available in a disciplined and conservative manner. Though she was not keen on working towards the future costs of goals like retirement and post-retirement health needs, she wanted to ensure money is available for future. We had worked out the future costs of goals, based on available inputs which gave her a fair idea of how much is needed for the future. She was not keen on focusing on the long-term goals due to the recent changes in her personal life. 

The author is a SEBI Registered Investment Adviser and can be reached at www.financialplanners.co.in