Budget benefits for you: Higher PPF, exemptions

Jul 14 2014, 09:59 IST
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Lal Singh Rawat with his family in Ghaziabad (IE Photo: Praveen Khanna) Lal Singh Rawat with his family in Ghaziabad (IE Photo: Praveen Khanna)
SummaryFew new provision regarding personal tax have been introduced in the Union Budget 2014-15.

Name: Lal Singh Rawat (44)

Resides in: Delhi

Profession: self-employed

Other details: Spouse — Prema (38), Daughters — Yamini (14) and Rakshita (11)

Annual income: Rs 6.00 lakh

Status & goals

Lal Singh Rawat is a consultant in accounts and taxation. His wife is a homemaker and they have two daughters. Being self-employed, he does not enjoy the benefits like Provident Fund and hence there is no forced saving. His primary concern is his daughters’ education and marriage. Lal Singh has been a very conservative investor and his investments lie in debt instruments and gold. His conservative approach is also due to the liabilities he is shouldering. He has not covered his family with any insurance, which poses a great risk in case of contingencies. He wants to draw a road map for his future.

Needed

A financial plan which can guide him on the right mix of insurance, investments and focus on financial goals

Goals in order of priority

Yamini’s Education (2017) (Inflation 10%)

Current value Rs 16 lakh

Future value Rs 21 lakh

Yamini’s marriage (2024) (Inflation at 7%)

Current value Rs 15 lakh

Future value Rs 30 lakh

Rakshita’s Education (2020) (Inflation 10%)

Current value Rs 16 lakh

Future value Rs 28 lakh

Rakshita’s marriage (2027) (Inflation at 7%)

Current value Rs 15 lakh

Future value Rs 36 lakh

Retirement Planning (2035)

(Pre-Retirement Inflation at 7%, life expectancy 83 years)

Present monthly expenses Rs 20,000

Future monthly expenses Rs 82,000

Corpus required Rs 1.5 crore

Current investments

Cash

Rs 60,000

Insurance surrender value

Rs 1,00,000

PPF

Rs 2,35,000

Gold

Rs 2,00,000

Findings

Emergency fund

Lal Singh is maintaining

Rs 60,000 in savings account

Life Insurance

Covered for Rs 4 lakh through two traditional policies and paying a premium of Rs 35,000 p.a.

health insurance

Family is not covered through any health insurance scheme.

Existing Investments

He takes all financial decisions himself.

Liabilities

Outstanding car loan of

Rs 1.60 lakh and home

loan of Rs 5 lakh

financial planning

For a self-employed person, there are no forced savings and the irregular income makes it difficult as there can be months with no earnings. Although there are benefits which help in reducing taxability, the job of keeping yourself covered for contingencies and having a proper investment plan rest on yourself. To ensure your money grows beating inflation, some risk-taking is necessary. Lal Singh has stayed away from volatile asset classes which will be detrimental to his future goals, especially retirement. His low insurance poses a bigger risk to his entire family as any emergency can wipe out his entire savings. Hence effective planning is required to counter the risk which can arise in future.

Recommendations

Emergency Fund

Lal Singh should enhance his

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