Sure, you’d expect young couples in love to go beyond discussing love and fresh air—about that dream house they’ll buy once they’ve tied the knot, the first car or that honeymoon in Switzerland. But, do they also plan early enough to face those unexpected expenses, the education of their children or retired life? Take this couple from New Delhi, who got married earlier this year. Saba Shaikh Khan, a 23-year-old employee at a media house, and Tariq Khan, a 26-year-old software engineer, started planning their finances together even when they were courting. We asked them about their financial goals, and then got Rattan Chugh, chief executive of Cornerstone Wealth Management, to offer them some advice.
Saba Shaikh Khan and Tariq Khan
•Their combined annual income: Rs10.45 lakh
•Date of marriage: 14 April 2008
•Who takes financial decisions? Both, independently
• Marriage expenses: About Rs12 lakh, taken care of mostly by parents. Saba also had saved a small sum.
• Car: Tariq has taken a seven-year loan. He plans to repay it in the next 1-2 years.
• House: The couple is saving to buy a house worth Rs50 lakh in a few years. They will need a home loan, but don’t know how much.
• Kids: Their target is to save Rs2 lakh towards pre- and post-delivery expenses. They want children after five years. They are pegging the total education cost at Rs5 lakh, going by today’s prices.
• Retirement: They would need Rs30 lakh at today’s prices
• Saving habits: Lackadaisical. The two plan to step up savings to Rs2 lakh a year.
• Life insurance: Tariq’s, Rs5 lakh; Saba’s, will take in March 2009.
Medical insurance: Tariq’s, Rs1 lakh (from company); Saba’s, Rs1 lakh (from company)
• Spending habits: Tariq is a spendthrift, so Saba has to rein him in.
• Risk profile: She is conservative. More comfortable with ‘safe zone’ investments such as PPF. He takes risks once in a while. Saba says he had played with Rs17,000 in equity futures and returned a small profit.
• As a thumb rule the equated monthly instalment (EMI) should not exceed 25% of income. In the case of a home loan, one may stretch the limit to 30-35%. On a combined income of Rs10.45 lakh, they should not pay more than Rs21,770 a month.
• They may not be able to afford a Rs50 lakh house at this stage. Since they are young, they can look at buying a smaller house first. Assuming they are paying Rs15,000 per month as rent, they need another Rs12,000-13,000 to pay EMI for a loan of Rs25 lakh.
• Should save 25% of income, or Rs2.6 lakh a year, for long-term goals.
• Loan amount: Should have insurance to cover for the home loan.
• Critical illness: If one of the partners is unable to continue his/her career, the entire financial burden, including servicing of loans, will fall on the other. Insurance will take away some of that burden.
• Buy term insurance, as it is the cheapest.
• Total expenses should not exceed 50% of take-home salary.
Chugh says: “Both are young, have very long-term goals, so they can have an aggressive investment strategy. They could sign up for systematic investment plans of a few good diversified equity mutual funds. Fixed income (debt) assets may get accumulated automatically through (the) employee provident fund.”
Sweta Mohanty and Saurabh Jain
Sweta is a news reporter and Saurabh is a Software engineer. Both are based in Bangalore.
• Their combined annual income: Rs15 lakh plus
Date of marriage: 27 January 2008
Who takes financial decisions? Both independently
• Personal milestones/ targets
• Marriage expenses: Parents refuse to divulge
• Car: Planning to buy a vehicle worth Rs4.5 lakh, will take a loan of Rs3.8 lakh
• House: Booked an apartment, value undisclosed; will put in some of their own money, rest on loan
• Kids: Not in immediate plan
• Retirement: requirements change, don’t know how materialistic we would be in our golden days
• Saving habits: Will save 30% of respective salaries a month
Investment pattern: Stock market 30%, Mutual funds 20%, PPF 10%, Others 40%
•Risk profile: Willing to take risks.
• Medical insurance: Saurabh’s, Rs3 Lakh plus, She doesn’t have one.
• Spending habits: He doesn’t think twice before spending, but keeps her in loop
Under the 30% rule, EMI should not exceed Rs37,500 a month.. Could go for smaller house, or one with lower value initially so that EMI is lower. Could sell it when value appreciates and buy a bigger house when income levels rise.
Should save 25% of income, or Rs3.75 lakh a year for long-term goals
Since both are working, key areas of insurance covers are:
•Loan amount: have insurance to cover for home loan when they take it.
•Critical illness: what if one of the partners is unable to continue their career. This would put the financial burden of one partner (including the servicing of loans).
Buy term insurance as they are the cheapest.
Expenses: Should not exceed 50% of take-home
Chugh says: Sweta and Saurabh have not defined their goals as yet. While this is understandable given that they are still young, they should stick with the discipline of investing 25% of their savings from the beginning. This would help build a corpus to support future requirements. They are already investing in mutual funds and stocks. Twenty-five per cent of their income, Rs31,250 per month, invested can build a corpus of over a crore in just over 9 years assuming a rate of return of 20% .
Photographs by Madhu Kapparath / MINT
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