MONEYMAKEOVER Build a strong base to protect your wealth Have contingency fund, adequate life & health covers to mitigate risks

Born and brought up in Mumbai, Mehul Bheda (29) lives with his wife Kinjal (26) and his parents. Mehul's father used to run a groceries store and is now retired. His mother is a housewife. The couple works in the private sector.  What are they saving for?  •Their top most priority is to purchase a larger home in the next five years for about Rs 50 lakh.  • For their retirement, they estimate a need of Rs 5 lakh per annum.  • Once they have children, they will also need funds for their education and marriage.  • Their aspirations include foreign travel and a car.      These figures will be revised in the future on the basis of inflation.  Where are they today?  Cash flow: The couple's annual inflow from all sources is Rs 8.35 lakh. Against this, their annual outflow is Rs 6.06 lakh. Their monthly outflow includes regular investments via SIPs, EMIs on loan taken for house, insurance premiums, supporting their parents and other routine household expenses. Annual debt payments come to around 6% of their annual takehome income.  Net worth: The couple's total assets are worth Rs 32.92 lakh, comprising personal assets worth Rs 25 lakh including house and jewellery. There is an outstanding loan of Rs 7.07 lakh taken for purchasing their home.  Contingency fund: Against the mandatory monthly expenses of Rs 35,000, the couple's balance in savings bank and liquid funds together comes to Rs 65,000, which is approximately twomonths' reserve.  Health & life insurance:  Mehul has a life insurance cover of Rs 78.30 lakh, which includes endowment policies and a term plan. The couple has a health insurance of Rs 1 lakh each.  Savings & investments: The couple's balance in savings bank account is Rs 15,000 and in liquid fund Rs 50,000. Their invested assets include equity shares worth Rs 2.81 lakh, equity mutual funds worth Rs 4.31 lakh, along with debt mutual fund and PPF together worth Rs 14,000.  Fiscal analysis  Mehul and Kinjal are saving about 45% of their total income, but their health and life covers seem to be inadequate. While borrowing is within permissible limits, the couple should pay off the loan aggressively by increasing the EMI.  The way ahead  Contingency fund: The couple must keep aside funds equivalent to about threemonths' mandatory expenses. They should maintain a contingency reserve of Rs 1.10 lakh, out of which Rs 20,000 should be held as cash in hand and the balance in an FD linked to a savings bank account. This reserve must be reduced once their loan is paid back.  Health & life cover: The couple's health cover seems to be insufficient — this must be increased to Rs 3 lakh each for Mehul and Kinjal. Since both are generating income, they both need life cover. The recommended incremental sum assured for Mehul, by way of a term plan, is Rs 50 lakh, and for Kinjal Rs 35 lakh. This may need to be enhanced if the couple opts for any loans in the future.  Planning for couple's  financial goals  Home buying: The couple wishes to buy a larger house worth Rs 50 lakh in five years. Once the loan for their existing home is paid off, they must start investing in debtbased products in order to accumulate a corpus for the down payment of a bigger home. When purchasing that bigger home, they can use the proceeds from the sale of their existing house along with the corpus accumulated in debt instruments for making the down payment. Any short-fall can be funded by a home loan.  Retirement planning: In order to save for their retirement, the couple should start investing Rs 7,500 by way of SIPs in equity-based mutual funds. They must increase this amount by 5% every year. Also, they can continue contributing to their EPF/PPF accounts.  Children's needs: Once their home acquisition is complete, the couple can start an SIP in an equity fund to create a corpus for funding their children's future needs.     T o b e f e a t u r e d i n t h i s      f o r t n i g h t l y c o l u m n , w r i t e      t o m o n e y m a k e o v e r @      t i m e s g r o u p. c o m  PLANNER'S EYE      You can always make a strong and large building, but unless its base is strong, it is susceptible to risk. Similarly, a contingency fund, health insurance and life insurance form the base of your financial building. No matter how much wealth you create, unless you have a contingency fund, health and life insurance in place, it is susceptible to risk. In the absence of these, even one untoward incident can lead to an erosion of the hardearned wealth you have generated over the years. Mehul and Kinjal Bheda