I am 47 and have zero savings. After all expenses, I am left with nothing in hand. Can you help me with a financial plan?

I am 47 years old, and due to a series of circumstances, including COVID, I have zero savings at this point. 

My current financial situation is as follows: 

Home Loan EMI: Rs 37,800 (payable for another 3 years) 

Life Insurance premium: Rs 13,500/quarter (Rs 20 lakh cover) 

Medical insurance cover: Rs 5 lakh 

After covering all expenses such as utilities, internet, maintenance, and petrol, I am left with almost nothing in hand. Could you help me with a plan for when I am 50 years old, especially when my home loan will close. 

Name Withheld 

Reply by Balwant Jain, a tax and investment expert  

A financial plan can only be prepared with full particulars about monthly income, monthly outgo and existing investments, etc. Moreover, the financial plan is not made for a single goal in isolation and is to be prepared taking into account various goals and their relative importance and immediacy.  

Based on the limited information provided, here are my suggestions. First, let us take your existing life insurance policy, which is a whole-life endowment policy. For life cover one should buy only a pure term plan that comes relatively cheaper and helps you cover higher risk. So, I would suggest you buy a term plan equal to around 12 times your annual income. This is most important as it will ensure that in case something happens to you before the home loan is fully repaid, your dependents will not have to inherit the home loan which can be repaid with the insurance claim received. If possible, please buy a separate term plan to cover the outstanding home loan. Once the new term plan is in place, I would advise you to surrender the existing policy and use the money to create an emergency fund.  

The medical insurance of Rs. 5 lakh is inadequate looking at the cost of treatment during hospitalisation. Increase your health insurance to at least 10 lakhs. Buy individual insurance for all members of the family if the finances permit else you can buy a family floater policy.   

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Since full details of cash inflow and outflow as well as the amount of home loan outstanding are not provided it is not possible for me to suggest how the home can be repaid by the time you turn 50. You should not unnecessarily worry about closing your outstanding home loan as long as you buy a term plan to cover it.  

In case you do not have an emergency fund to meet any exigency, I strongly recommend you create an emergency fund equal to at least six months of expenses. Once the emergency fund is created and your income also rises, you can plan to start saving through a Systematic Investment Plan (SIP) in an equity mutual fund scheme, for your other goals including prepayment of the outstanding home loan. 

(Views expressed by the investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)