I have written many articles on term insurance, health insurance, and retirement planning. A few of my readers have previously asked me – Can you create a sample financial plan for a family with a simple example of financial planning for salaried employees in India? So, here we go!
About the author: Ajay Pruthi is a fee-only SEBI registered investment advisor. He can be contacted via his website plnr.in.
Financial Planning for Salaried Employees
Let`s create a sample financial plan for an individual in India with the Simple Example of a salaried person.
Ajay is 35 years old, married, and has a 7-year-old son. He works in a corporate and earns a decent salary. His wife is 3 years younger than him. Ajay’s income and Provident Fund details are as follows:
Salary & PF Details
- Accumulated Amount in PF – 8 Lakhs
- Monthly Basic Salary – Rs. 60,000
- Monthly PF Contribution –
- Employee PF Contribution -Rs. 7200
- Employer PF Contribution – (Rs. 7200 – Rs. 1250) = Rs. 5950
- Total PF Contribution – Rs. 13,150
- Annual Expected hike in basic pay – 5%
- Eligible for Gratuity – Yes
Since Ajay has been working for the last 8-9 years, he has accumulated a few assets. The details of which are as follows:
- PPF Account- the Accumulated amount of 7 Lakhs with an annual contribution of 1.5 Lakhs.
- Mutual fund investments of 3 Lakhs with a monthly SIP of 20,000 in direct plans.
- 6 Lakhs in Savings Bank/FD/Liquid Funds account for an emergency.
At this particular time, these are the only assets Ajay has in his possession.
Since Ajay is living with his parents, he will get the ownership of the house as an inheritance. For this reason, he is not interested in buying a house. Nonetheless, he is planning to purchase a commercial property for investments.
Monthly Expenses
Here is the list of Ajay’s monthly expenses.
- Household expenses – 40,000
- Personal Care Expenses – 10,000
- Other Expenses – 10,000
Surplus Available for Fresh Investments
The Monthly Surplus available for fresh investments is – 40000. This is in addition to the ongoing SIPs of 20,000 and PPF of 12,500 per month.
Goals
Here is the list of Ajay’s goals
- Child`s Higher Education after 10 years – 20 lakhs
- Child`s Marriage after 20 years – 10 Lakhs
- Retirement Expenses – 50,000 per month
- Commercial Property after 10 years – 30 Lakhs
- Vacation every year – 50,000
- Vehicle – 5 Years – 6 Lakhs
Here are some of the possible assumptions regarding life expectancy, inflation, and returns during the accumulation and withdrawal phase.
Assumptions | |
Retirement Age (Years) | 60 |
Longevity Age (Years) | 85 |
Retirement Expenses per month | Rs. 50,000 |
Higher Education (In Lakhs) | 20 |
Marriage (in Lakhs) | 10 |
Education Inflation | 8% |
General Inflation | 6% |
Return from Equity | 12% |
Return from Debt & Real Estate (Long Term) | 6% |
Return from Retirement Kitty | 1% above inflation |
Financial Planning for Family – Sample Plan
Insurance Requirements
Before calculating the total needed amount for various goals, let us cover the basics. This is because, in case of unfortunate events of death, medical emergencies, or disability, these goals are not impacted.
Life Insurance Amount
With monthly expenses of 50,000/- the insurance requirement would be 250 Lakhs. Considering the child’s higher education and marriage goals of 30 Lakhs, the total requirement would be 280 Lakhs. Presently, Ajay owns assets worth 24 Lakhs (PF+PPF+Mutual funds+Emergency Fund). As such, the net requirement in this case would be 256 Lakhs.
On this account, Ajay can go for a term insurance cover of 2.50 Crores.
Health Insurance Amount
Ajay can opt for a family floater health insurance cover of 50 Lakhs. This amount can be divided into a base policy cover of 10 Lakhs and a super top-up cover of 40 Lakhs. (With 10 Lakhs as deductibles.)
Though Ajay has a cover of 5 Lakhs through his employer, this 50 Lakhs is to ensure decent health cover for the post-retirement days or coverage during job change etc.
Ideally, both the covers should be bought from the same insurer as it helps in easy and convenient claim settlement.
Personal Accidental Policy.
Ajay can opt for a cover of 1 Crore with 20 lakhs total temporary disability cover. It should only be bought from a general insurance company and not as a rider in term insurance products.
Riders in life insurance companies usually do not cover Total Temporary Disability and Permanent Partial Disability.
Critical Illness Policy
Since Ajay does not have a family history of any critical illness, there’s no need for any critical illness policy. Instead, Ajay can increase his health insurance coverage in the future with a super top-up policy.
Now let’s take a look at the calculations related to the various goals of Ajay.
Child`s Higher Education
Child`s higher education after 10 years – 20 lakhs
Value of 20 Lakhs after 10 years at 8% inflation rate – 43 Lakhs
How much does Ajay need to invest in order to achieve the target amount of 43 Lakhs after 20 years?
If he invests 100% in equity mutual funds, the amount required would be 21,000 per month assuming 10% returns.
Since the duration of his goal is less than i.e. 10 years, it is not advised to go for 100% equity. Ajay can invest 50% in equity and the remaining 50% in debt instruments. Assuming a total 9% return of combined equity and debt, Ajay would need to invest 23,000 per month. The amount would be invested in equity and debt mutual funds in the ratio of 50:50.
Child`s Marriage
Child`s Marriage after 20 years – 10 lakhs
Value of 10 Lakhs after 20 years at a 6% inflation rate – 32 Lakhs
How much does Ajay need to invest in order to achieve the target amount of 32 Lakhs after 20 years?
If he invests 100% in equity mutual funds, the amount required would be 5,000 per month assuming 10% returns (4,500 per month to be precise)
Since the duration of his goal is 20 years, it would be better to invest 100% in equity.
You can also ask why the 3 Lakhs in mutual funds have not been used here. Yes, the amount of 3 Lakhs can be used in either child education or marriage. Now, we know that the retirement duration is 25 years and Mutual Fund investments are good for the long term. We will use the same in retirement planning.
Retirement Planning
The monthly amount to be provided in current value: 50,000, Retirement Age – 60
Value of 50,000 after 25 years on retirement @ 6% inflation: 2.15 Lakhs per month.
This has to continue till Ajay’s wife turns 85, around 28 years. (Assuming longevity of 85 for this calculation).
Assumed investment return post-retirement period is 1% above inflation.
The Corpus required for this would be somewhere around 6.30 Crores.
Ajay can plan the accumulation of this amount as follows:
- Ajay will get around 185 Lakhs from his PF accumulation. This is based on the assumption of a 5% increment in PF account every year and 6% interest rate for 25 years.
- If he invests 1.5 Lakhs every year in his PPF account, he’d get around 112 Lakhs at age 60. (Assuming that he will invest the amount at the end of the year.)
- As he already has 3 Lakhs in mutual funds, assuming 10% returns on this investment, he’d get around 33 Lakhs.
The above-mentioned investments lead to a total of around 330 Lakhs. Out of which, only 33 Lakhs is in equity i.e. 10% in equity and 90% in debt.
The remaining amount required for Ajay’s retirement is 300 Lakhs.
The monthly investment required to achieve 300 Lakhs in 25 years is 24,000 assuming 10% returns in the long run. (Gratuity would be extra at the time of retirement)
Do we need to invest anything in debt apart from PF and PPF?
Since the time to achieve the goal is 25 years, the answer to this question is no.
Plus, the debt part is close to 50%.
Re-balancing would indeed be required when the goal approaches nearer. But at this point in time, we can increase the equity part.
Ajay can achieve his vacation goal by investing 4,300 per month in RD.
The total investment required for various goals is 68,800, in addition to PF. Ajay has a surplus of 72,500 per month along with current SIPs and PPF.
The insurance premium can be paid from the remaining surplus amount.
What About Other Goals?
- Commercial Property after 10 years – 30 Lakhs
- Vehicle – 5 Years – 6 Lakhs
After investing in child`s education, marriage, and retirement goal, no surplus would be left. The only option left is to invest the annual bonus or any other remaining surplus for these goals. Otherwise, it is better to postpone the goals until enough funds are accumulated.
As the investments are fixed, Ajay will grow in his career, and he may be able to invest for his goals in the future. The other option can be to keep increasing SIP for a child’s education, marriage and retirement goals and start investing for vehicle and commercial property goals.
There can be various solutions to financial planning depending on the priorities of goals.
For vehicle – Invest the surplus in debt funds/RD/FD.
Whereas, for commercial property – Investment can be a mix of equity and debt funds.
Investment for different goals:
Ajay can use a mix of the index fund, flexi cap fund, and mid-cap fund for equity mutual funds. Besides, 1 or 2 debt funds can be set aside solely for debt investments.
I trust that this article has provided you with valuable insights into a financial planner’s approach to financial planning for a salaried employee. Although each planner may bring their unique perspective or individual touch, the overall process of financial planning typically follows this framework.
Please feel free to share your opinions with us.
Do share this article with your friends using the buttons below.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1000 investors and advisors use this!
New Tool! => Track your mutual funds and stocks investments with this Google Sheet!
![Follow Freefincal on Google News Follow Freefincal on Google News](https://freefincal.com/wp-content/uploads/2023/07/Follow-Freefincal-on-Google-News.jpg)
![Subscribe to the freefincal Youtube Channel Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.](https://freefincal.com/wp-content/uploads/2023/07/Subscribe-to-the-freefincal-Youtube-Channel.jpg)
Podcast: Let’s Get RICH With PATTU! Every single Indian CAN grow their wealth!
![Listen to the Lets Get Rich with Pattu Podcast Listen to the Lets Get Rich with Pattu Podcast](https://freefincal.com/wp-content/uploads/2023/07/Listen-to-the-Lets-Get-Rich-with-Pattu-Podcast.jpg)
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter with the form below.
- Hit ‘reply’ to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!
Explore the site! Search among our 2000+ articles for information and insight!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu gets a superpower!” is now available!
![Both boy and girl version covers of Chinchu gets a superpower](https://freefincal.com/wp-content/uploads/2021/02/Article-bottom-Chinchu-gets-a-superpower-front-cover-for-girls-and-boys.jpg)
Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision-making and money management is the narrative. What readers say!
![Feedback from a young reader after reading Chinchu gets a Superpower (small version)](https://freefincal.com/wp-content/uploads/2021/02/For-bottom-Feedback-from-a-young-reader-after-reading-Chinchu-gets-a-superpower.jpg)
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. – Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
![Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you want](https://freefincal.com/wp-content/uploads/2017/05/2-mini-Cover-pink.jpg)
Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)