Financial Planning

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Financial Planning:

Financial planning is a process by which an individual, under the guidance of an expert, charts a roadmap to meet expected and unforeseen needs in life. Anyone earning an income must have a concrete plan to spend the money in a productive manner. He must consider financial planning to set himself up for success in life.

II. Basics of Financial Planning:

1. Set goals

This begins by making a list of the most relevant financial goals or objectives.

For instance, the individual may choose to set aside money towards:
1. Child’s higher education or marriage
2. Retirement planning
3. Buying a house
4. Emergencies and so on
Once he has listed the objectives, it will bring in a sense of responsibility and commitment. He will no longer be inclined to spend money like he used to, because now he has more important things to do with his money.

2. Prepare a plan for each goal

Next is to prepare a plan to achieve each goal listed down by the individual in the first step. This involves making calculations and putting down a number towards each goal, for instance Rs 10 lakhs towards child’s education five years later or Rs 25 lakhs towards down payment on the house you wish to buy ten years later. It is advisable to engage a competent financial planner at this stage to help with the calculations. Apart from the math, he will draft a suitable portfolio with recommended investments to put you on the path to achieving your goals

3. Setting aside money

The individual must set aside money regularly towards these goals. This is best achieved through an automated investment plan where you invest a fixed amount at intervals (monthly/quarterly) in a unit-linked plan (ulip) or a mutual fund. These are better known as systematic investment plans or SIPs. They are light on the wallet and help investors benefit from rupee cost averaging, which reduces the purchase cost of the investment over time.

4. Get Life Insurance on Priority

Getting a protection plan must rank among the more important priorities for an individual. Life insurance has a variety of options that makes it convenient for individuals to provide for the family’s financial security in their absence.

5. Get Medical Insurance

Just as important is to get medical insurance to provide for health-related emergencies. A health insurance plan when taken at an early age comes at affordable premium and covers a larger number of health conditions. As you age, premium rates start climbing and certain health conditions may get excluded from policy coverage.

6. Child Planning for its Future:

Plan You Child's Future.

Welcome Your Child into a World of Financial Stability

For a parent, there is no greater joy than holding your baby in your arms for the very first time. Once you welcome your bundle of joy into your family, we’re sure that you will do whatever it takes to keep your baby happy and make all their dreams come true. Of course, this means that you will have to start planning for your little one’s future even before you’re ready to welcome them into the world. It may sound outrageous, but providing for your child, helping them get the quality education they require and giving them wings to fly can be incredibly expensive.

From 2008 to 2014, the cost of education, right from primary school to the postgraduate level, increased by 175%1! If you aren’t quite sure what this means, let’s take a look at an example. Let’s assume that your child is currently 2 years old. The cost of an engineering course today in a good college may cost INR 6 lakhs currently. In 16 years, by the time your child is ready to go to college, the cost is likely to go up to INR 15 lakhs. If you’re starting to worry about your child’s financial future, don’t. Here are a few simple tips that you can use to secure their future:

Have a Plan in Place for Their Education

Your child’s education is possibly the most important expense that you will have to plan for. Every decision that you make during your child’s formative years could greatly affect their lives well into adulthood. You may even have to start saving up or investing even before you decide to welcome a child into the world. While saving up money for the future is a good start, keeping inflation in mind, it’s a better idea to invest your money in tools that will provide you with high rewards in the future. It’s also important to understand that your child may have special needs and require special attention. This could further increase your overall spending on education.

Don’t Forget to Think About Their Hobbies

While a good education is important, we all remember the popular adage, “All work and no play makes Jack a dull boy.” Forcing your child to focus only on their academics isn’t always a good thing. You may be killing the hopes of the next Roger Federer or P. V. Sindhu. If your child shows that they’re inclined towards a particular sport or even if they’re budding artists, you should try to fuel their passions to the best of your ability. Enrolling them in art classes or special coaching could help them better develop their skills. But, coaching also requires significant investment and good financial planning.

Consider Inflation and Your Investment Options Wisely

While planning your finances, you may be thinking in terms of how much something costs today. But, as your child grows, costs are likely to grow with them too. Always plan your finances keeping the high rate of inflation in mind. Once you have an idea of how much money you may need for your little one’s future, you can create a well-thought-out financial plan. There are a number of investment tools available in the market today, ranging from Unit-Linked Insurance Plans (ULIPs) to Children’s Plans that can assist you in planning for a better financial future for your little one.

Make Sure You’ve Planned for Every Eventuality

As you’re making all your plans for your baby’s future, don’t forget to think about life’s unpredictability. You never really know when an unfortunate accident may leave you unable to work or take you away from your loved ones. An unfortunate incident may leave your loved ones struggling to keep their finances afloat. This is precisely why it is crucial for you to secure your family’s finances with a term insurance plan.

Bringing a child into the world is a wonderful and rewarding experience, but it isn’t a decision to be taken lightly. You need to be sure that you can do everything in your power to ensure that your child has a happy and successful future, and the only way to do that is by welcoming them with financial stability. Investing in their future and ensuring that their financial future will remain unchanged even if something were to happen to you is of utmost importance. With a few smart investments and carefully-planned life cover, you can grow your family and give your little one the help they need to make all their dreams come true.

7. Keep a contingency reserve:

An essential component of a solid financial plan is its emergency fund (also called a contingency fund). As you know, life is uncertain and emergencies (such as loss of income, medical emergency, loss of assets, etc.) are contingent in nature and therefore, an intelligent approach would be to put away a portion of one's savings to counter these exigencies if/when they arise.

Ideally, review your budget and save a minimum of 6 months of monthly living expenses in a contingency fund – that includes everything from household expenses, to EMI payments, or any other expenses you may incur during a regular month. Those with several financial commitments, and who are averse to risk, as well as those who require high amounts of liquidity can maintain 24 months of monthly expenses. But on an average, 12 months of living expenses can be held as a contingency fund.

8. Purchase an adequate life and health insurance plan:

This is the most neglected area of personal finance. People seem to understand its importance only when an untoward event happens. If you are the sole bread earner of your family or there are liabilities to be repaid, make sure you purchase an optimum health insurance plan. From a health insurance perspective, purchase a policy with a minimum cover of Rs 5 lakh and covering all your family members.

III. Role of Life Insurance:

Having insurance can protect the majority of your income if you become unable to work. Insurance is an important part of financial planning because it protects you and your loved ones from the costs associated with accidents, disability, illness and death

There are all sorts of things you may need to consider while making decisions about your financial future. A better understanding of things like the risks associated with a class of financial product, a strategy or product structure, will help you make an informed decision about the value of advice you receive.

Cash Flow and Budgeting:

To ensure you achieve your financial goals, it is important that you understand your own financial situation. By taking charge of your money and making sure that you're spending less than you're earning, you will ease money stress and feel more secure and in control.

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