Meera Menon, a 31-year-old celebrity chef-turned-entrepreneur has a thriving baking business in Bengaluru. Though her love for baking started out as a hobby, it soon became a full-fledged successful business with four outlets in Bengaluru. In addition to this, Meera also undertakes baking orders for weddings and parties. She has about 20 employees working under her currently. Meera moved to Bengaluru from Kerala in 2007 for her studies and has continued to live in the city since. Her parents reside in Kerala and are dependent on Meera. Her younger sister moved in with her a year ago to pursue her pre-university studies in Bengaluru.
Meera generally has a busy schedule and works six days a week. She lives in a rented apartment with her younger sister. She has a monthly income of ₹4 lakh and her expenses every month work out to about ₹1.20 lakh. She pays about ₹30,000 on her house rent, fuel costs for commute to work costs about ₹10,000, household expenses totals ₹20,000, pocket money for her sister is about ₹10,000, and there is a home loan EMI of ₹30,000 for remodeling of her parent’s house in Kerala. In addition to this, Meera transfers ₹20,000 every month to her parents back home. The balance ₹2.8 lakh she saves. Meera has total bank savings of ₹18 lakh.
In spite of her busy schedule, Meera loves to travel and makes it a point to travel to one international destination every year with her friends. During her downtime, she takes off on quick three-day-long weekend holidays to nearby destinations.
Her immediate goals are to save up for her sister’s higher education and to buy a home for herself.
Funding for travelling: Assuming she would need to spend about ₹5 lakh per year on international travel, she can start an SIP of ₹40,000 in an ultra-short term debt fund towards this goal. With the typical return of about 6.50 per cent, she should be able to comfortably afford a luxury holiday.
Dependent parents: Meera can continue to spend ₹20,000 from her monthly income to support her parents. In addition, she can factor in possible emergency expenses for her dependent parents while building an emergency fund. This will help her navigate unforeseen emergency situations without a major impact on savings for her remaining goals.
Funding sister’s education abroad: Meera has to fund her sister’s graduation abroad and after that her sister will fund her Masters education herself. This is an important time-based goal with just 2.5 years to go. The extra year is to prepare and spend time in India with parents and sister before she heads out for graduation and post graduation. So, the investment will be largely debt-based and a small allocation to dynamic equity to aim for slightly higher return.
Currently, the education abroad in her sister’s target school would cost about ₹30 lakh. However, factoring in the inflation of about 5 per cent, the education at the same school in 2023 would cost about ₹35 lakh. Meera can start a monthly SIP of about ₹90,000 per month with an 80 per cent allocation to short-term debt fund and 20 per cent allocation towards balanced advantage funds. This allocation should fetch her about 8 per cent return and in 30 months she would be able to achieve the target of ₹35 lakh for funding her sister’s education.
Buying a home: A home in Bengaluru in about 10 years from now is a medium-term goal. In 10 years, a two-bedroom apartment in a good location in Bengaluru would cost her about ₹3 crore. Since she has about ₹18 lakh saved up in her bank account, Meera can invest some portion of it in liquid mutual funds to meet the down-payment requirement.
The recommendation would be to save at least six times her monthly expenses in a savings account as an emergency fund. Hence, Meera can park ₹5 lakh in her savings account for emergencies, keep about ₹1 lakh for insurance premium for the year and move the remaining ₹12 lakh into liquid mutual funds.
Apart from this, Meera can start SIP investments in large-cap or multi-cap funds that could yield a typical annualised return of 11-12.5 per cent. We recommended that she start an SIP with about ₹1.25 lakh per month and gradually increase this from time to time to reach the goal. Even at a fixed amount, ₹1.25 lakh per month over over 10 years should help her achieve a corpus of ₹3 crore.
Liquidity for emergencies:
Apart from ₹5 lakh parked in her bank account for all emergencies, she can start a lump sum transfer of all funds into a money market fund and keep topping this up over and above the ₹5 lakh threshold limit to build a savings corpus.
Insurance cover for herself and parents: Meera currently doesn’t have any insurance cover for herself or for her dependent parents. In the unforeseen event that she or her parents are diagnosed with critical illness, the medical expenses can be of the order of several lakhs and this can eat into her savings very quickly. If she had a corporate job, chances were that her employer would offer an insurance cover for her and her dependants which can cover such unforeseen expenses. But since she runs her own firm, the onus is on her to cover such risks by opting for insurance. She needs to buy term insurance for herself and a family floater plan to cover her dependant parents. This could cost her about ₹1 lakh a year.
Cover yourself:
Unlike employees who may have the benefit of corporate health and life covers from employers, the onus is on entrepreneurs to cover such risks on their own by taking adequate insurance
| Current Status (₹) | |||
|---|---|---|---|
Income per month | Expenses per month | Savings and Investments (Bank FD) | |
4,00,000 | 1,20,000 (Breakup below) | 18,00,000 | |
| Rent | 30,000 |
|
| Fuel | 10,000 |
|
| Sister's pocket money | 10,000 |
|
| Household | 20,000 |
|
| Parents | 20,000 |
|
| EMI for Home remodel | 30,000 |
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|
|
GOAL | AMOUNT | TIME |
|
Sister's education | 35,00,000 | 30 months |
|
Home | 3,00,00,000 | 120 months |
|
Travel | 5,00,000 | 36 Months (Recurring Goal every 12 months) |
|
Recommended (₹) | ||||
|---|---|---|---|---|
Income per month | Expenses per month | Savings and Investments | ||
|
|
|
|
|
4,00,000/- | 1,20,000 (Break-up below) | 5,00,000 | Bank FD | |
| Rent | 30,000 | 12,00,000 | Liquid funds |
| Fuel | 10,000 | 90,000 | Insurance premium |
| Sister’s pocket money | 10,000 |
|
|
| Household | 20,000 | 2,55,000 | Mutual fund SIPs |
| Parents | 20,000 |
|
|
| EMI for Home remodel | 30,000 |
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|
Goal | Amount | Action | Where | Time |
Sister’s education | 90,000 | Monthly SIP | 80% short term debt funds | 30 months |
| 20% in diversified equity | |||
Own house in Bengaluru | 12,00,000 | Lump sum | In ultra short debt funds | Immediate |
1,25,000 | Monthly SIP | In diversified large-cap and multi-cap funds | 120 months | |
Travel | 40,000 | Monthly SIP | In short term debt funds | 12 months |
Insurance for parents | 40,000 per annum | Health Insurance | Health insurance - ₹10 lakh cover | Immediate |
Insurance for self | 50,000 per annum | Term Insurance | Life cover – ₹2.5 crore | Immediate |
The author is the Founder and Managing Partner, Germinate Wealth Solutions