Home loans, children's education, parental care... those in their 40s have it tough meeting their financial obligations. Preeti Kulkarni has some tips to lighten the load

BY THE time an individual approaches late-30s or mid-40s, he enters a phase that necessitates carrying out a delicate balancing act. For, this is the stage when on one hand domestic expenses, including home loan instalments, lifestyle and children's education, hit the roof and on the other, it's time to pay back your parents for everything they have done by supporting them when they are no longer earning. It could be a taxing period, no doubt, but some smart planning, coupled with a judicious spending plan, could help you sail through what can be termed as the 'Sandwich Years'.

PARENTS' INCOME

If your parents have already stepped into the retirement phase, but have a substantial retirement fund to bank on, you could simply look at enhancing their corpus by directing a part of your income to the same, in order to help them meet their routine expenses. This would mean a sense of security for parents as they can rest assured that their retirement pool remains intact.

CLOSER TO RETIREMENT

If your parents have, say, five years to go before they hang up their boots, you could help them get started on a retirement planning exercise by chipping in with some amount out of your own funds every month to boost the kitty. While it is difficult to create a fund within, say, five years that is capable of taking care of post-retirement years, it could help in reducing the strain on your resources once they actually retire.

IDENTIFY BIG-TICKET EXPENSES

The first step to a relatively hassle-free period is to ascertain the big-ticket expenses that could hurt you financially and providing for the same. In the case of parents, the biggest expenditure one could be faced with would be the cost of medical treatment. "If they are of insurable age, one should promptly take a health cover for them. If not, then you need to build a certain corpus for the purpose to avoid nasty surprises later," advises Anil Rego, CEO of financial planning firm Right Horizons. Premium paid on health policies for parents qualifies for deduction of up to Rs 15,000 - Rs 20,000 if they happen to be senior citizens - under section 80 D. The best option, though, would be to ensure that they are covered under your employer's group health insurance schemes.

CONTINGENCY RESERVE

While such a fund is critical at any stage in life, it becomes indispensable when you have multiple responsibilities to discharge. Ordinarily, a corpus equal to six months' expenses would suffice, but in this scenario, it would be wise to direct any additional savings into the fund. Keeping aside these funds in your savings account could be your safest bet, instead of investing the same in liquid funds. Liquidity, in addition to preserving the capital, is the key.

CONSIDER REVERSE MORTGAGE

If there is an enormous strain on your cash flows, and your parents stay in a house they own, you can look at this option. Under the scheme, which is offered by some public sector banks, senior citizens can mortgage their house to a bank in return for a loan that serves as their income stream during the tenure, even as they continue to reside there. "This would ensure monthly cash inflows for the parents and lighten the burden on your finances for the time being. It also makes them feel less dependent on their offspring - after all, they are the ones who have created the asset," points out Aditya Apte, partner with The Tipping Point, a financial planning firm. "A few years down the line, when your income levels improve, you could look at freeing the asset. During the period, you could build a corpus for repaying the loan."

CHILDREN'S HIGHER EDUCATION

Another big-ticket and most crucial expenditure, this goal, too, requires meticulous planning, best done by earmarking a sum to be invested in regular investment avenues like SIPs, bank recurring deposits or even child ULIPs. Setting aside a specific amount on a monthly basis would ensure minimal pressure on your finances. In case your financial position doesn't permit even regular monthly savings, remember, an education loan can come in handy to make good the shortfall.

WALKING A TIGHTROPE

* BUY A HEALTH cover for your parents, if they do not have one already. Advancing age reduces the chances of obtaining a mediclaim policy at a reasonable premium.

* IF HEALTH insurance has been denied to your parents due to their health condition - that is, if they suffer from critical illnesses - you should look at creating a fund to take care of expenses arising out of their ill health.

* FOR PARKING the money meant for exigencies or even their routine domestic expenses, safe and liquid options like savings bank account work best. Liquidity is crucial for those with limited income sources.

* YOU COULD contemplate living with your parents, if possible, as the cost of running two households could spiral out of control.

* THIS IS A stage when the strain on cash flows is likely to be enormous, and hence, a stringent control on your expenses and sticking to your budget is of paramount importance.

* A CONTINGENCY reserve - for your parents as well as spouse and kids - is a must even if the entire family is covered by employer's group mediclaim or individual policies.

* REVERSE MORTGAGE can be considered if your parents own a house and you too have an alternative accommodation of your own. It will lend a sense of independence to your parents and at the same time, ease the burden on your finances.

* AT A LATER stage, you could look at repaying the reverse mortgage loan, when your income levels rise. You could also start building a corpus for clearing the debt, as soon as it is taken.

* FUNDING YOUR children's education and at the same time, creating a corpus to finance their higher education are another priority. Setting aside a fixed amount every month would go a long way in helping you achieve this goal, without hurting your budget.

Source : http://epaper.timesofindia.com/