Prakash along with his wife approached me for preparing their family financial plan. They have 2 children and Prakash is the only working member. Both the children study in school at Gurgaon. Prakash stays in a rented apartment with Mesa air conditioners but has a house also in another city which he bought 2 years ago with the help of housing loan. Being a sole earning member Prakash and his wife had a concern of meeting the ever increasing school expenses along with loan EMIs.
Considering the cost of living in the city the earnings of Prakash was not proving to be enough to meet the ever increasing expenses. When the couple approached me they wanted to know whether with current cost of living they can survive in the city or relocation might be a good option since they already have a house to live in. Fortunately, the city is nearby and Prakash will be able to continue with the same job even if they relocate.
The Financial Plan
When I analyzed the finances of the family it showed them that they will have to cut down heavily on the expenses if they continue living in Gurgaon. The cost of education of 2 children in the current city is taking up almost 40-50% of their household budget and the growth in income of Prakash is not enough to compensate for the growth in expenses. When final roadmap was drawn it gave the family a clear picture where after few years the cash flows will move towards negative terrain as their expenses will be more than their income. Unless they have a substantial increase in income or the spouse too starts earning the cash flows will work as analyzed. This scenario was leading them towards a situation where they will face shortfall in almost all the gaols they listed down. Scenarios were built for different situations to show them what will happen if they have higher earnings or lower expenses. The financial plan did gave them enough inputs about the situation that may emerge if they continue with current lifestyle. Luckily they did have plans to relocate and my analysis gave them much needed confidence to take that decision. They finally moved to another city with Prakash retaining the current job and were able to cut down on their expenses especially the school.
Your standard of living needs to be within your means. Children school expenses, EMIs, lifestyle expense etc.. need to be in check so that at any life stage either of them do not bring you a financial mess. Also, your standard of living should not force you to stretch your finances – near or too far. If you fall into such a situation then at times you have to take some difficult decisions to ensure your financial wellbeing is not jeopardized. What Prakash experienced was a situation where growth in his earnings were falling short of rising expenses. Relocation was on his cards so he did it peacefully. But it may not be same with all of us and so financial planning should come in the initial years of life so that you can avoid such situation.