How to overcome the dilemma of financial planning

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₹20 lakh for his son’s education, but this would be insufficient to fund education overseas. He is not sure how to build additional corpus or whether he should rely on loans or sell existing assets. Figuring out how to fund a sudden increase of 2-4 times the amount needed for a financial goal is baffling many individuals and has become one of the most asked questions.

The first resort is to withdraw from the employee provident fund (EPF). The logic behind this is that forgoing 8% return is better than paying 9-10% on a loan. This is not right though.

Withdrawing EPF means losing out life savings which are meant as a financial security for retirement. And given the fact that the amount withdrawn cannot be put back makes it worse. Some session participants say they do this hoping their children would take care of them in old age.

But putting retirement at risk for any other goal is not advisable. Given the ease of obtaining loans, education loan or loan against gold and/or mortgaging a property are the other options considered to fund the shortfall. With rates of 8-10% per annum, these options are preferred over selling the assets.

Of course, this means additional burden on the parents to pay back these loans and pretty much put their aspirations on hold. Frankly, it is impossible to double or triple savings for a goal in a 2-year period and while loans are preferred over withdrawing EPF, Indian parents need to have their children contribute heavily towards the repayment of these loans. The current generation in their 50s may be agreeable to be dependent on children but the generations younger to them are certainly not.