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I am a bank employee aged 38. My net income is Rs23,000 per month. My monthly savings include contribution to provident fund of Rs2,600, group life insurance of Rs806 with a cover of Rs4 lakh, systematic investment plans (SIPs) in various schemes totalling Rs8,000 and bank recurring deposit of Rs5,000. Apart from these, I make two yearly payments—Public Provident Fund (Rs10,000) and five different insurance policies (Rs13,080). I have two goals: a corpus of Rs20 lakh for my two sons each for their education and marriage and a retirement corpus of Rs50 lakh. Am I on the right track?
-Sandhya
As far as savings are concerned, you are doing the best thing—saving maximum to your ability. However, your investments need some change to help you attain your goals and even exceed the same.
Your insurance cover is low. While you have not provided the details of your five insurance policies, it does not look like they offer you a high sum assured. Evaluate the same and if possible consider stopping them. The same premium can then be used to increase your life cover. You should aim to provide for at least five times your annual earnings. Consider having a sum assured of Rs25 lakh. This can be done through a term plan. Also, check whether your employer covers you and your family for medical insurance. In case it doesn’t, then you need to provide for the same.
Also, analyse your mutual funds portfolio once a year. Identify and weed out funds that are underperformers and do a portfolio rebalancing.
At your pace of savings and assuming the savings growth at 5% per annum on average and long-term inflation at 7% and interest at 9%, you will be able to build a retirement corpus of Rs91 lakh when you turn 58, after providing for Rs20 lakh for both your kids.
Ideally, what percentage of one’s annual income should one save in a liquid emergency fund? My father says at least a quarter. I’ve been working for three years and still haven’t saved that much.
-Malini Banerjee
There is no predefined percentage of what you should save for an emergency fund.
It all depends on your personal needs and your family circumstances. Identify foreseen emergencies such as healthcare or accidents. While the quantum is not easy to define, you can still aim to provide for the emergencies by taking adequate protection for yourself in the form of health insurance with a critical illness rider. This along with a term insurance and an accidental insurance policy will go a long way in providing you security.
You should try to maximize your savings and should determine a financial road map yourself or by taking help.
Queries and views at mintmoney@livemint.com
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