Financial planning is One of the most important topic to be discussed in world today. Still many people are not aware what does it actually mean. For most of the investors, 'financial planning' still sounds as a jargon. So let's first understand what financial planning actually is: Meaning of Financial Planning: Financial planning is the most important way through which a person can allocate his current income to secure his future.
A portion of the current income is therefore saved and applied to creating assets that will meet these requirements. Financial planning refers to the process of streamlining the income, expenses, assets and liabilities of the household to take care of both current and future need for funds
1) Personal financial analysis is very important , as people do not find time from their daily routine to plan for themselves so to know the income, expenses and networth helps us to know where we stand as per our goals.
2) When the financial planner shows the right direction to safeguard his money to the investor to achieve his investment objective , so goal setting is one of the important factor of financial planning.
3) Financial planning is a dynamic process that requires consistent attention to changingmarket and product performances, dynamic changes in the needs and status of theclient and the ability to tune the process to these changes. It needs full-timeprofessional attention and the efficiencies of a disciplined and systematic process.
Individuals and families have many goals in life to fulfil for which they will have to save, accumulate and grow their money. The most common life goals are :
1) Children’s future including education and marriage
2) Buying a house
3) Comfortable Retirement
Other goals may include going on regular or one time vacations, purchasing a car/vehicle, corpus for starting own business and being debtfree(home loan, car loan), etc.
1) Base Stage
2) Accumulation Stage
3) Preservation Stage
4) Distruibuton Stage
The process of wealth protection, wealth accumulation and wealth distribution is applicable to all individuals irrespective of the stage of life and situation of the individual's life be it in beginning of a career, immediately after getting married, joint family, recently separated, single parent, at the time of retirement or after retiring. Though starting early is best thing to do, it is never too late to start planning.
Following the process helps in :
You may need help from a professional financial planner if :
You do not possess expertise in certain areas of handling finances. A planner can help you evaluate the level of risk in your investment portfolio or adjust your retirement plan due to changing family circumstances.
You want a second opinion on the financial plan you have developed, to give you confidence in the viability and expected success of the plan in achieving your goals.
You have an immediate need or an unexpected event has occurred that requires you to start planning, such as, birth of a child, inheritance or major illness.
You want or feel the need to improve your current financial situation but don't know where to start.
You feel that a professional adviser could help you improve the way in which you currently manage your finances.
You don't have time to spare for your own financial planning.
You find it difficult to stick to a plan.
Some personal finance software packages, magazines or self help books can help you do your own financial planning but they are usually generic in nature. Things To Keep In Mind When Approaching Financial Planning Look at the bigger picture financial planning is more than just retirement planning or tax planning. Don't confuse financial planning with investment planning. Investment planning is just one component of FP. Direct your life, don't let life direct your actions Don't wait to be affected by monetary crisis to begin FP. Financial planning is more about your life than about finances.
All of us have many dreams to fulfill. These dreams become more precious if they are for our loved ones. Especially if they are for our children. We as parents always want to give our children the best, particularly when it is a question of their Education. However, with the steeply increasing cost of higher education, we need to be prepared and assured that when the time comes; our child's dreams become a reality!
Most of these goals have a price attached and unless you plan your finances carefully, you may not be able to provide the required economic support to your child when you need it the most. For example, with the increasing education, if you are not financially prepared, your child may miss an opportunity of a lifetime.
Today, a 2-year management course at an premiere management institute will cost you nearly Rs. 3,00,000 At a assumed 6% rate of inflation per annul, 20 years later, you would need almost Rs. 9,07,680 to finance your child's MBA degree. An illustration of how education expenses could rise with passing time due to inflation.
| Inflation | It can erode the value of money. Hence, it is essential that your retirement investment is planned to make your returns inflation proof |
|---|---|
| Greater life expectancy | With overall life expectancy increasing, you need to plan for increased number of years post your retirement |
| Medical emergencies | Increase in age, necessitates sufficient provisions for increased medical emergencies |
| Personal financial goals | While determining your personal financial goals, it is essential to take into future changes in your expense patterns |
The only way to deal with this is through systematic and regular savings.
There are various ways and means to build a financial corpus for your child. Most parents start with opening a bank account for their child; some go a step further and buy certain investment instruments or even precious metals such as gold.
Most life insurance companies offer various Child Plans (to be linked to our Young India Plan page) that that not only help you grow their money through market linked instruments, but also ensure that your child receives financial support as planned, even in your absence.
It is hence important for you to understand what each of the options have to offer and how it best works for you and your child.
However, please read the product brochure carefully, study the benefit illustration along with the various investment options and associated charges and understand how the plan can work for you. Remember, what might be the right plan for your neighbor and their children may not necessarily be the right plan for you!
The best years of ‘Life' ought to be your retirement years. You have worked hard all your life, and you deserve the best things in life in these golden years.
Helps you set-aside money in your prime years when are generating income and enjoy a healthy lump sum or a steady income in your retirement years. It helps you avoid a dramatic hit to your lifestyle post retirement and provides financial protection to your dependents.
Your retirement plan should takes into account the following
| Inflation | It can erode the value of money. Hence, it is essential that your retirement investment is planned to make your returns inflation proof |
|---|---|
| Greater life expectancy | With overall life expectancy increasing, you need to plan for increased number of years post your retirement |
| Medical emergencies | Increase in age, necessitates sufficient provisions for increased medical emergencies |
| Personal financial goals | While determining your personal financial goals, it is essential to take into future changes in your expense patterns |
There are several retirement policies, under which you can choose the age at which you wish to retire, and the premium you invest towards your retirement. These policies help you achieve your retirement goal by providing you with significant tax benefits and appreciated capital at your chosen age of retirement.
All of us are living longer than our forefathers. It's absolutely essential to have enough money for old age. Due to increase in the cost of health care and longevity - you need more money for long term than in short term. When you are young you will have lesser income and lesser savings. When you reach middle age, you will have higher income and higher savings. As you grow older, you will have perhaps no income and only your savings saved throughout your earning period will come to your rescue.
Life insurance like pensions and provident fund locks up your savings like in a bank vault and prevents you from withdrawing for your short term consumption needs. A retirement plan helps you set aside money in your prime years when you are generating income and enjoy a healthy lump sum or a steady income in your retirement years.
There is no right age to start savings for your retirement. The earlier and more consistent you are, the better will be your saving in the long run. There is always a substantial difference in the wealth of people who start saving early through a systematic financial plan as compared to those who delay.
Let's look at an example :
Both Ajay and Vijay want to retire at the age of 60 years. Ajay invests Rs. 50,000 towards his retirement corpus while Vijay invests a total of Rs. 1,00,000 . However, inspire of investing less, Ajay accumulates Rs. 1.49 crore, compared to Vijay's accumulation of Rs. 1.01 crore!
Note: The assumption is that both investments appreciate at the rate of 10% p.a.
What Ajay had in his favor was time! He began investing a sum of Rs. 50,000 p.a., at the age of 25 years. Vijay on the other hand, saved Rs. 1,00,00 every year from the age of 35. Remember, more than the amount saved it is the rhythm of savings that helps you realize your dreams faster.
While income, expense, investments and liabilities form the four pillars of any financial plan, its success actually depends on the ability to manage these well. This is where Life Insurance forms a critical part of any financial plan. Life insurance is a long term product that provides you the benefit of compounding while ensuring that your loved ones are taken care off.
Inflation is the rate at which the general level of prices for goods and services rises. This erodes the purchasing power of your money. This effectively means that with Rs.100 today, you will be able to purchase more goods than with Rs.100 after 10 years.
With inflation rising continuously, how do we ensure that we have sufficient money to fulfill our dreams? The answer is clear – through regular and systematic savings.
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