Sample Financial plan #9 – feasibility of the investment plan

We have now reached an important crossroad in the financial journey for Ravi and Madhuri. The investments needed annually to support all their dreams is now known. It is very likely that if they make these investments per year, they will have the financial support needed to actualize all their goals. The key question however is – given their current financial situation, is such an investment possible?

The short answer to the question is unfortunately NO. As we saw earlier, Ravi and Madhuri earn about 20 lacs a year currently and there expenses are more than 10 lacs today. In addition to this they may need to spend some more money on insurance etc, that we have not looked at so far. However, before we look at what can possibly be done, it will be important to understand their spending and amount of surplus available.

We will be doing this through the Extended money equation that was covered in an earlier post. Go back and read the post again if you need to understand it better as I’ll not be explaining the basics here, only the application. The equation is :-

IS = AI + PI – RME – DME – RAE – DAE – IRE

As we know AI for the family is about 1.8 lacs today and has the potential to increase by 10 % every year. RME, DME, RAE and DAE together is about 80,000 Rs today. However, as their children are just going to start proper schooling and those expenses are high, they will be comfortable to budget at least 1.1 lac for the same. Indulgence related expenditure is primarily the foreign vacations that has been planned as part of their goals. Based on this, the surplus available currently is 70,000 Rs per month. Note that their EMI for the housing loan is 40,000 Rs per month and it will run for the next 11 years.

We will take up on the different strategies of tweaking the investment plan in the next post. However, for now, let us see what can be done with the extended money equation for their family.

  • One obvious way is to increase AI. Ravi’s income will increase over the years naturally and Madhuri will start earning more as she spends more time in her freelancing. As they have already budgeted for the schooling expenses of the future, the surplus available for investment will increase over the years.
  • Another way to increase AI will be for Ravi to change his current job for a higher income one or for Madhuri to start working in a regular job. This was not something that I had recommended as the family was comfortable in their current situation and disturbing the stability on job and home front did not seem worth it.
  • Reduction of expenses is an option but that involves compromises on what they are used to, so it was seen to be the least preferred way.
  • A big part of RME is the EMI of 40,000 Rs that will be available from 2026 onward.

Based on the above, I recommended that they start funding the 2 PPF accounts and invest the rest of the available money in equity. This meant that in the first year the equity investment was only 5.4 lacs as compared to the needed 13 lacs. Is this a big problem in terms of meeting their goals? Seemingly so, but not really in practice.

Follow me in the next post to understand how this can be done.

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One thought on “Sample Financial plan #9 – feasibility of the investment plan

  1. Wow..
    Following the series so far..
    Waiting to c what the doctors prescription will be 🙂
    Thanks so much for sharing your knowledge to us readers.
    Regards,
    George Mathews

    Like

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