MONEY MAKEOVER Make money work, not lie idle

If you want your children to fly, don't cut their wings, says financial planner Gaurav Mashruwala Birds encourage their offspring to fly on their own. Eventually, the fledgelings gain confidence and explore the world. Sandeep Mehta's parents followed this principle. Sandeep never enjoyed studying, so in his teens he applied to the merchant navy and the armed forces. He got his first call from the merchant navy. At the age of 17, he set sail. While his banker father was a little apprehensive, his mother has always been supportive. Today, at 37, Sandeep is the COO of a large shipping venture. His wife Divya is currently at home spending time with their seven year old daughter Samya. Sandeep's mother also lives with them in Navi Mumbai. They have one house in their native place, Jaipur.  WHAT ARE THEY SAVING FOR? (1) Another house, for which they need Rs 1 crore in 13 years. (2) Samya's education–Rs 20 lakh in 10 years (3) Retirement corpus of Rs 1 crore in 13 years. (4) Rs 30 lakh for Samya's marriage after 15 years.  WHERE ARE THEY TODAY? Cash flow: Total income from all sources is about Rs 42 lakh. Outflow is about Rs 35 lakh. Their biggest outflow is income tax followed by house rent and insurance premium. They spend also on routine household expenses, EMI on home loan, entertainment and vacation. EMI is about 7.5% of inflow. Statement of net worth: Value of total assets is Rs 1.98 crore. This includes assets worth Rs 95 lakh for self consumption. Liabilities are around Rs 46 lakh. This includes home loan, other personal loan. Total outstanding liability is 23.25% of assets.  Contingency fund: Mandatory monthly expense is about Rs 1.65 lakh. Against this, funds in savings bank and bank FD is Rs 72.62 lakh. This is about 44 months' reserve. Health & life insurance: Total health cover for the entire family is Rs 6.50 lakh. Total life cover is Rs 48.07 lakh, in the form of money-back and ULIP policies. Approximate annual premium for life insurance policies is Rs 4.36 lakh. Savings & investment: Of total assets worth Rs 1.98 crore, value of cash/near cash and invested assets is Rs 1.03 crore. This includes a balance in the saving bank of Rs 72.62 lakh, bank FD Rs 89,000, direct equity Rs 3.80 lakh, equity funds Rs 10.80 lakh, EPF/PPF Rs 3.35 lakh and ULIP Rs 12.50 lakh.  FISCAL ANALYSIS: Large yearly income, predominantly from salary. Contingency funds are excessive. Big funds are lying idle in the savings bank. Health cover is inadequate. Life insurance polices are investment-oriented. They consume lots of yearly inflow without giving adequate cover. Borrowing is within permissible limits. Asset allocation needs some modification. Very large amounts of funds are lying idle in the savings bank.  WAY AHEAD:  Contingency fund: Reduce contingency reserve to Rs 5 lakh. Use entire excess balance to pay off debt. Balance after paying debt should be deployed as per strategy below. Health cover: Enhance health cover for self and spouse to Rs 10 lakh and enhance it to Rs 5 lakh for Samya. Also get cover for mother. Life cover: Sandeep should cover himself for at least Rs 1 crore through term plans. Also redeem all ULIP plans after five years.  PLANNING FOR FINANCIAL GOALS  Home: Surplus left after paying back loan should be invested in a debt mutual fund and systematically transferred into a broadbased index fund over three years. Also, start a systematic investment plan into the same index fund.  Samya's education: Deploy proceeds received from ULIP into a Nifty-based index fund. That, plus existing investment in equity and equity funds, should be used for her higher education.  Marriage: Apart from an SIP into the index fund, start two more SIPs in a Sensex-based fund and a gold fund, for Samya's marriage.  Retirement: At the time of retirement, use one house as residence and the second house for generating regular income. Further, inveset funds in EPF/PPF and other investments in liquid investments to meet contingencies.  PLANNER'S EYE  The family's second largest asset is their savings bank account where vast amounts are lying idle. This is a criminal waste of wealth. One should get restless once one's savings bank balance crosses three months' mandatory reserve. If nothing else, park amounts greater than Rs 1 lakh in cash/liquid schemes and smaller amounts in bank FDs until you decide your investment strategy. At least you're putting your money to work.  (To be featured in this fortnightly column, write tomoneymakeover@indiatimes.com)