B. Vivek works with a reputed IT firm in Bengaluru as a team leader. The 34-year-old is married and the couple has a three and a half year old daughter and a new arrival is expected in another six months. Mr Vivek’s wife is a homemaker.

Financial goals

The couple wants to purchase a car in the next three years and a house of their own over the next five years. The medium term goal — which stretches from the next 5-15 years, is a proper education for both the kids. The long term goal, beyond 15 years, is to ensure a comfortable retirement and children’s marriage.

Where is he now?

Mr Vivek’s current salary is `6 lakh/year. Adjusted for taxes and provident fund contributions, this comes down to `4.4 lakh/annum. Household expenses — including rentals — add up to `2.4 lakh/year, leaving a surplus of `2 lakh annually. Right now, Mr Vivek invests `75,000 a year in various insurance and Ulip policies offered by LIC and other insurers.

There is also a small investment in a gold ETF. The total value of these savings adds up to `2.5 lakh approximately. This still leaves an annual surplus of `1.25 lakh.

Recommendations

Mr Vivek’s current savings are sufficient to last for a year. It is heartening to see that he has taken some precautions to insure his family against the unknown, but he needs to do a bit more here.

He should ideally take a term cover of `30 lakh along with critical illness and accidental death benefit of `5-7.5 lakh. This should cost him `17,500/year. He should also take out a mediclaim policy for a cover of `5 lakh — he needs to plan for his wife’s maternity stay in the hospital too. This should cost him `7,000/year.

One anomaly in his financial decisions so far is the mix between debt and equity. Just 26 per cent of Mr Vivek’s savings are in equity linked instruments while the rest are in debt. At his age, the ratio should be the other way round.

Apart from the savings that he already has, he could start putting money in PPF. An amount of `70,000/year invested in his wife’s name would be ideal. The remainder – adding up to `1.25 lakh/year – should be invested in 2-3 large, diversified mutual funds.

Overall, Mr Vivek has his thought process going right with few choices that are seldom seen in persons of his age. Change in asset mix with 60 per cent equity from the present 26 per cent will do the necessary trick.

(L. Ravindran, PhD, is a financial advisor and managing director of Wealthmax Enterprises Management Private Ltd.)