Financial Planning For Mr.

John Sharma

1
Agenda

• Profile of Mr. John Sharma

• Expenses
• Dreams & Goals
• Assets
• Current & Future Income
• Protection
• Calculations
• ROAD MAP to financial plan
• Proposed Investment Plan
• Assumptions
• Important things to NOTE

2
Profile:

• Age – 32 yrs
• Dependants Spouse (28 yrs) & Child (4 yrs)

3
Expenses

House-hold Expenses Monthly Loan Repayments Monthly

Phone Bills 500 Car Loan  
Laundry 500 Personal Loan  
Conveyance 1,500 Housing Loan  
Food Bill 5,000 Others  
Estimated Income Tax 18,000 Total Loan EMIs 0
Consultant Fees 1,500 Regular Investment required Monthly
Electricity Bills 1,000 PF / PPF  
Holidays 5,000 Other Tax Savings Investments  
Subscription 250 Any other Recurring Investments  
Tuition Fees for children education 5,000 Insurance Premium 4,167
Entertainment 2,000 Total Investments 4,167
Charity 5,000
Others 2,000 Average Total Monthly
51,417
Expenses
Total House-hold Expenses 47,250

* PV of expenses required on retirement Apprx . Rs.60,000/-

4
Dreams & Requirements in priority

GOALS PV Tenure
Childs Education (1) 1,500,000 15
Childs Marriage (2) 500,000 20
Housing (3) 10,000,000 15
Retirement (per month) (4) 60,000 23

5
 Detailed Investment Report of the family

Postal
Direct MF Compan RBI Infra. Debent PP Bank Total
Sr Client Name MF Debt Schem NSS
Equity Equity y FD Bond Bonds ure F FD (Lacs)
e

1 Ajay Sharma 0  415,344 0  0  0  40,000 0  0  0  0  0  4.55

 2 Mannu Sharma 0  103,098 56,096 0  0  0  0  0  0  0  0  1.59
John Sharma
 3
HUF
0  253,373 238237 0  0  40,000 0  0  0  0  0  5.32

 4 Aakash Sharma 512,164 72,080 0  0  0  80,000 0  115399 0  0  86,122 8.66

 5 John Sharma 0  75,246 0  0  0  0  0  0  0  0  0  0.75
 6 John Sharma huf 336,324 345,447 227,988 0  0  50,000 0  0  0  138599 17,804 11.16
 7 Mrs.John Sharma 0  144445 118,598 0  0  50,000 0  0  0  0  0  3.13
 8 Minal Sharma 0  20156 0  0  0  0 0  0  0  0  0  0.20
110000 162,78
 9 Minoo Sharma 299,143 242,145 929,838 0 
0
90,000 500000 105495 0  0 
4
34.29
 
10
Madam Sharma 38,745 389,853 114,791 200000 0  0 0  0  0  138599 0  8.82

Total (Lacs) 11.86 20.61 16.86 2.00 11.00 3.50 5.00 2.21 0 2.77 2.67 78.48

Equity Debt Inheritance

Summarised 901462 602989 3500000

9,00,000 6,00,000 35,00,000
6
Income & Insurance

Income (Monthly)
Salary 60,000

Rent + Other 30,000

Total Income 90,000

Regular Expenses 51,000

Net Disposable Savings per month 39,000

Est. Growth in Savings 2%

Insurance Protection
Life Insurance 75,00,000

Medi-claim 5,00,000

7
Future Value of Goals

GOALS PV Tenure (t) FV

Childs Education 1,500,000 15 3,118,392
Childs Marriage 500,000 20 1,326,649
Housing 10,000,000 15 20,789,282
Retirement 17,743,636 23 54,500,000

Assumption: Inflation (r) @ 5%

FV = PV (1+ r) ^ t

8
Retirement Calculations

Year Outstanding
Current Expenses to be Earnings Expenses Net Effect
Start  Capital
planned at the time of 1 54,535,192 2,181,408 2,211,497 -30,089
retirement
2 54,505,103 2,180,204 2,255,727 -75,523
3 54,429,580 2,177,183 2,300,842 -123,658
Returns on retirement
considered at 4% 4 54,305,921 2,172,237 2,346,858 -174,622
5 54,131,300 2,165,252 2,393,796 -228,544
Post Retirement expenses 31 18,532,141 741,286 4,005,821 -3,264,535
growth rate (inflation) @ 5% 32 15,267,606 610,704 4,085,937 -3,475,233
33 11,792,373 471,695 4,167,656 -3,695,961
34 8,096,412 323,856 4,251,009 -3,927,153
35 4,169,259 166,770 4,336,029 -4,169,259

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Lump-sum savings required for each goal

Lump-sum Required 5% 8% 10% 12% 15%

Childs Education 1,500,000 983,047 746,518 569,719 383,233

Childs Marriage 500,000 284,630 197,198 137,529 81,059

Housing 10,000,000 6,553,649 4,976,789 3,798,124 2,554,888

Retirement 17,743,636 9,282,183 6,086,460 4,021,444 2,189,506

Total 29,743,636 17,103,509 12,006,965 8,526,816 5,208,686

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Existing Investment Utilised for F goals

Post-Tax
Existing Investments Amount after 15 years
Returns
Equity 900,000 15% 7,323,355
Debt 600,000 6% 1,437,935
Inheritance 3,500,000 10% 14,620,369
Total 23,381,659
Childs Educations Need 3,118,392
Balance Remaining 20,263,267
Housing Need 20,789,282

-526,015

Both Goals, Child Education + Housing are maturing in 15 years. Priority also considered

11
Pending Dreams

Monthly
Goal PV Tenure FV Returns
Savings
Childs Marriage 500,000 20 1,326,649 1,262 12%
Childs Education 1,500,000 15 3,118,392 -  - 
Housing Shortfall 253,022 15 526,015 989 12%

Retirement 17,743,636 23 54,500,000 35,332 12%

Total 2,253,022   37,583  

• Monthly Savings @ 12% p.a. & 2% growth in savings on a y.o.y basis.

• This arrangement is sufficient to fulfill the requirements / needs of John
• John is saving more than the required amount … which is good
• Even if the saving would have been insufficient, a higher equity allocation
could be easily suggested in new savings and/or the existing savings

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Protection required

Goals PV

Childs Education 1,500,000

Childs Marriage 500,000

Housing -
Family Support is assuming that the
Family Support (Expenses) 16,020,000 family would not suffer to meet the
regular HH expenses from today till
Total 18,020,000 next 40 years in John’s absence

Less: Existing Investments 1,500,000

An additional policy / rider of Rs.75
Less: Inheritance Expected 3,500,000
lacs is suggested to John
Less: Insurance Covered 7,500,000

Additional Insurance Required 5,520,000

* To satisfy all the dreams in John Sharma’s absence

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Insurance

  Year 1 Year 5 Year 10 Year 15

Disposable Savings 39,000 42,215 46,609 51,460

Additional Insurance Premium reqd 27,000 27,000 27,000 27,000

Net Disposable Savings (Yearly) 441,000 479,578 532,303 590,516

Risk Cover Required 18,020,000 21,903,423 27,954,934 35,678,367

Existing Inv        

Existing Equity - 9 Lacs 1,035,000 1,810,221 3,641,002 7,323,355

Existing Debt - 6 Lacs 636,000 802,935 1,074,509 1,437,935

Inheritance - 35 Lacs 3,850,000 5,636,785 9,078,099 14,620,369

New Savings / Investments 467,460 3,083,682 8,858,059 19,409,736

  5,988,460 11,333,624 22,651,669 42,791,395

Risk Cover Required 12,031,540 10,569,799 5,303,266 -7,113,027

Risk Covered Available 7,500,000 7,500,000 7,500,000 7,500,000

Additional Insurance Cover Needed 4,531,540 3,069,799 -2,196,734 -14,613,027

Additional Cover Taken 7,500,000 7,500,000 7,500,000 7,500,000

Net Insurance Cover 2,968,460 4,430,201 9,696,734 22,113,027

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Investment planning

Investment Investment Equity Debt Returns

66.67% 33.33%
New Savings / Investments 468,000 12.00%
312,000 156,000
Exiting Investments - Equity 900,000 100.00% 0.00% 15.00%
Mutual Fund Debt 600,000 0.00% 100.00% 6.00%
44.50% 55.50%
Inheritance 3,500,000 10.00%
1,557,500 1,942,500

• Rs.1 lac of investments in tax saving schemes

• New Savings is 39,000*12 (for 1st year)

15
Cash Flows …

Year End >>> Year 1 Year 5 Year 10 Year 15 Year 20 Year 23

Net Disposable Savings 39,000 42,215 46,609 51,460 56,816 60,293

Additional Insurance Premium reqd 27,000 27,000 27,000 27,000    

Yearly Disposable Savings 441,000 479,578 532,303 590,516 681,788 723,518

Investments            
Existing Equity - 9 Lacs 1,035,000 1,810,221 3,641,002 7,323,355    

Existing Debt - 6 Lacs 636,000 802,935 1,074,509 1,437,935    

Inheritance - 35 Lacs 3,850,000 5,636,785 9,078,099 14,620,369    

New Savings / Investments (12%) 467,460 3,083,682 8,858,059 19,409,736 37,674,502 55,463,691

Net worth 5,988,460 11,333,624 22,651,669 42,791,395 37,674,502 55,463,691

Dream Realisation            

Childs Education       3,118,392    

Housing       20,789,282    

Childs Marriage         1,326,649  

Retirement            

Net Worth Balance of Dreams 5,988,460 11,333,624 22,651,669 18,883,721 36,347,853 55,463,691

16
Assumptions

• Inflation considered @ 5%, if returns falls down the inflation should also
fall & hence the impact would be nullified
• Returns on Income are even
• Business Income & Capital not considered
• Cash Flows of existing Life Insurance Policies not considered
• Return of 12% on new savings decided based on John’s risk profiling & it
satisfies his needs

17
Important things required in FP

• A clear idea on calculation

PV & FV
Retirement Calculation
Computation of monthly/HY/yearly savings for a required capital
• Make 2 to 3 plans and try selecting the ideal one
• In the event of deficits either prolong the goals OR reduce the dream amounts
• Priorities Goals & plan accordingly
• Monitoring the entire financial plan once in six months or a year

• Reviewing Financial Plans

– Fixed frequency of six months to a year
– Whenever there is a substantial change in your own condition, e.g., loss of
job, major expense, sudden wealth, etc.

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Thank you …

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