The Thomases reduced debt and restructured their insurance kitty to squeeze out funds for higher equity exposure.

BEFORE THE CHECK-UP:

• High debt through personal, car and home loans
• Total monthly EMI was 30% of income
• Started investing in mutual funds recently
• No life insurance for Priyamvada

WHAT WE SAID:

• Part prepay the home loan. Prepayment up to 25% of outstanding loan attracts no penalty
• Buy a Rs 25-lakh term insurance for Priyamvada
• Surrender endowment policy and switch redeemed amount to prepay loans or invest in mutual funds

ACTION TAKEN AFTER OUR PRESCRIPTION

• Bought a Rs 25-lakh term for Priyamvada
• Surrendered endowment policy. Redeemed money used to prepay personal loans and home improvement
• Mutual funds investments increased
• Increased home loan EMI to reduce tenure
• Planning to park surplus in a liquid fund for a systematic transfer payment

FINANCIAL HEALTH NOW

Handsome salaries. Near-perfect asset allocation. Everything seemed right with their finances. Until we calculated their debt. Total EMI was 30% of the Thomases’ income. And a sizeable chunk financed depreciating assets.

In an era when affordability is determined by EMIs, the temptation to stretch your credit worth is great. But don’t take loans on a whim. The amount consumed in servicing a loan could be invested. However, credit which helps create assets is not a liability — like home loans.

The Thomases acted fast. Within five months they have reduced their debt burden and set right their insurance kitty. Result: higher investible surplus, rightly channelled into equities.