How to ensure a smooth financial transition for a study sabbatical

Financial Planning | admin | November 11, 2011 at 8:30 am

Madhav Vinayak, a mid-level bank employee, believes that since he doesn't have a post-graduate degree from a premier institute, this is standing in the way of his career progression. So, he has decided to enrol himself in an MBA program. Madhav is single and besides his own expenses and investments, the only demand on his income is the monthly allowance that he gives to his mother for her personal requirements. He is also paying an EMI for the loan he has taken for his house. In the past five years, he has primarily invested in retirement plans and tax-saving schemes. He also has a small corpus in equity funds that he has built through systematic investment plans. As Madhav finalises his plans for taking a break from work, what are the things that he should keep in mind?

Madhav's concern should be about how he funds his education, generate an income and manage his expenses. Instead of dipping into his savings, he should opt for an education loan in order to fund his studies. This will free his investment so that it can generate an income for the duration that he does not have a job. He should look for an education loan that also covers his living expenses, at least partially.

Madhav will need an income to service the home loan and take care of other expenses that will not be covered by the education loan. He should move his accumulated corpus out of equity and in investments that will give him a steady, defined level of income.

For this, he can go for fixed deposits and monthly income plans. He should also consider renting the house and use this money for meeting the EMI obligation for his home loan to some extent. While it may be all right for Madhav to draw from this corpus to meet his expenses, he should avoid taking money from his retirement savings as far as possible.

It's also important for Madhav to make sure that he pays any debts on his credit cards or personal loans so that they don't drain his limited income. He should condition himself to living on a lower income, and if his study schedule permits, he should consider part-time employment to augment it. A little bit of planning and financial discipline should see him comfortably through this phase in life.

Source: Economic Times

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