Financial planning is the roadmap to realise and achieve financial goals in life. Everyone has financial goals in life. These goals may include:
• Planning for children’s education
• Planning for children’s marriage
• Buying a house or buying a second larger house
• Buying a car
• Enjoying a vacation with family every year
• Living a comfortable retirement life without any compromises
• Leaving behind an estate for children
Through proper financial planning a person can accomplish all the above goals. Given this it is so scary to know how less people know about money. As they say “Being wealthy is not about how much you earn or what you do. It is just a matter of proper Financial Planning”. Financial planning can help a person identify his / her goals, invest towards achieving those goals and regularly review the investments every year to make sure they are on track to meet the desired goals. In short financial planning is a journey and not a destination.
Financial Planning Stepping Stones
The process of financial planning is divided into seven steps. Let us try to understand the process of financial planning with the help of an example.
Ajay is an MBA working for a MNC and is reasonably well placed. Ajay is married, has a 7 year old son Karan. Ajay stays with his parents. Ajay’s parents are retired and are dependent on Ajay. Ajay now wants to buy a new home and start saving money for his child’s education and marriage and his own retirement. He would also like to go on a short vacation once every year.
Let us see how financial planning can help Ajay realize his goals with a high degree of certainty. The first step to financial planning is to assess the strengths and the risks involved.
Ajay is (30 years of age). That means a 30 year investment horizon till retirement.
Ajay has regular income @ 8 Lakhs per annum
Ajay is debt free and has no financial liabilities.
Ajay is sole bread earner of the family.
Ajay’s parents are old and hence more susceptible to health issues.
Now keeping Ajay’s example in mind let us see how the process of financial planning works.
1. Emergency / Reserve Fund
This is the first step of financial planning. Ajay should have a reserve fund equivalent to meet his 3 to 6 months expenses. A reverse fund is needed for the purpose of covering unforeseeable expenses like medical emergencies or temporary job loss etc. With an adequate reserve fund Ajay will not be required to dip into his investments in times of crisis.
Life is full of uncertainties and so it is imperative that one has adequate insurance cover to help mitigate the risks that might arise due these uncertainties. A term insurance plan for Ajay would ensure that the family’s survival is not at stake in Ajay’s absence. Ajay’s insurance cover should be equivalent to the present value of his future earnings till his retirement. Also Ajay should buy a good health insurance policy for the entire family to take care of any expenses that might arise due to medical emergencies. Ajay’s parents are dependent on Ajay. If his parents get hospitalised due to some critical illness the huge hospital bill can burn a big hole in Ajay’s pocket.
3. Child Education Fund
Ajay wants his son Karan to become a doctor. Ajay wants to start saving for his son’s education from now onwards. If the cost of the course as on today is Rs. 10 lakhs then the same course will cost Rs. 41,77,248 (Rs. 42 lakhs approximately) 15 years down the line if the cost of education increases by 10% (inflation) every year. If Ajay wants to reach this target of Rs. 42 lakhs 15 years down the line then he will have to start investing Rs. 9300 per month (Rs. 1,12,000 per annum) if his investments earn him a return of 12% per annum.
4. Child Marriage Fund
Ajay wants to start saving for his son’s marriage from now onwards. The marriage is planned 18 years from now. If the cost of an normal wedding as on today is Rs. 6,00,000 then the same marriage will cost Rs. 33,36,000 (33.36 lakhs) 18 years down the line if marriage expenses increase by 10% (inflation) every year. If Ajay wants to reach this target of Rs. 33.36 lakhs 18 years from now then he will have to start investing Rs. 5000 per month (Rs. 60,000 per annum) if his investments earn him a return of 12% per annum.
5. Buying a House
Ajay wants to buy a house worth 25 lakhs 3 years from now. For this he will have to make a down payment of Rs. 5 lakhs (20% margin money). He will have to start setting aside Rs. 13,000 every month in a recurring deposit account.
6. Annual Vacation
Ajay wants to go for an annual vacation every year. This will cost him anywhere in the range of Rs. 25,000 to Rs. 40,000. Ajay can make provision for this from his monthly cash flows. He can set aside Rs. 3,500 from his monthly salary in a recurring deposit account and withdraw the money at the end of the year and go for a vacation at the end of the year.
7. Retirement Planning
With advancement in medicine and technology the life expectancy of individuals is on the rise, this means more number of years of retirement. Therefore in order to reduce dependency on others; individuals must start working early on building their retirement corpus. Ajay wants to live a comfortable retirement life. So he wants to start investing for it from today itself. Based on his current monthly expenses Ajay can calculate his retirement expenses assuming an average inflation rate of 5%. And accordingly Ajay can start investing from today onwards to build his retirement nest.
8. Asset Allocation
Ajay needs to invest for various goals like Karan’s education and marriage, his own retirement. Ajay can invest in a mix of asset classes like equity mutual funds, fixed income securities, commodities etc. to meet these goals. Initially Ajay can have a higher exposure to equity mutual funds. As his age goes on increasing he can change his asset allocation and go on gradually reducing the equity exposure and go on gradually increasing the fixed income securities exposure.
9. Tax Planning
Ajay should make sure that while choosing his investment instruments he gets maximum income tax benefits. Under various Sections of the Income Tax Act (like Section 80C, 80D, 80E, Section 24) an individual can avail deduction from taxable income.
In this way with Ajay’s example we have seen how proper financial planning can help a person plan for all his financial goals and start investing towards achieving these goals. Also financial planning is not a one time process. It is an ongoing activity wherein the investments need to be reviewed year after year till the targets are not achieved. Also above we have mentioned the Financial Planning is a journey and not a destination.
Disclaimer: The above information is collected from various sources. Readers are requested to investigate themselves & take legal & professional advice before entering any tie-ups.
Financial Planning for a Child Tips
Are you planning a child? Than do you know that you will have to do a financial planning for your child’s future? Well, yes. The economy will advance after 20 years from now and everything will be costly starting from education to marriages, businesses and lifestyle.
And that’s why the day your child born, you should start a financial planning for your child. Here are the few great tips for the financial planning of your child.
1. Start Investing early -
This is the 95% advise that anyone needs to do a successful financial planning for their child’s future. Well, its a simple logic. The earlier you will start, the compound interest will work more in favour of you and you will make a huge wealth for your child. Only a 5 years of difference can make a huge difference in the wealth later on.
Simply search the Google and see that how powerful the Compound Interest and you will realize the importance of starting early. Ideally you should open a joint account in the name of your child since his/her birth and start investing regularly in it.
2. Invest 100% in Equity for long term -
When we plan to build wealth in the future after a long time horizon say 15-20 years from now, we should go for the asset class which can give us highest returns in the long run. And that asset class is the Equity. So invest 100% of your money in Equity to build a huge wealth for your child.
The simple and easy way to invest in equity is – Equity Diversified Mutual Funds. Simply start investing in 3-4 equity mutual funds having a past record of proven performance via SIP and simply forget it.
3. No Child Future/Education Plans please -
One of the commonest mistake people do is, they invest lots of money in the financial products offered by insurance companies. This is probably because of their lucrative names. Well, don’t invest in any investment schemes offered by the insurance companies. This is because they are very costly and they won’t build much wealth in the long run. Only buy pure term life insurance for your child from insurance company and invest rest of the money in equity only.
4. Consider Inflation -
Most of the people don’t consider the inflation while doing the financial planning. If you need today’s 1 crore after 20 years than at the rate of 7% inflation, it will be 5 crores or above. So consider the inflation first and than start investing.
Thus, keep in mind the above basic things and start EARLY…!!!!
Advantages of Health Insurance
Type of Health Insurance Plans
Health Insurance Policies
Health & Accidental Insurance provides you with a sense of security that you and your family are protected against sudden medical emergency or during the time of accident. With Health and accident cover you need not worry about your Medical Expense in such contingency. We help you provide with the best Insurance cover.
Credit cards work the same way
as debit cards ad the process is exactly same.
only difference is that he customer's credit card account is debited and no his savings account. The advantage of a credit card account is that the customer gets some time to pay back the amount to the bank. For example, the amount of all transactions done between the 1st and the 30th of a month need be paid only by 20th of the next month.
Therefore,the customer gets interest-free credit for up-to 50 days for a transaction done on the 1st of the month.
However, if the amount due is not paid by the due date, an interest will be charged from the date of the transaction at rates, which are fairly high. Banks are able to offer interest-free credit because on every transaction, they recover a fee from the merchant as in the case of Debit card,but a higher rate Merchants are willing to pay the fee, called interchange because they are paid immediately. In addition, they get more customers. many of these customers would not have purchased if cash payment was insisted upon.
Credit cards can be used for withdrawn cash from ATMs too. How ever,for every withdraw a fee of 2% or minimum Rs200 is recovered which is higher.
Further,interest is charged from the date of transaction until the date of payment.
In other words there is no interest free period for repayment of sh withdrawal made with credit cards.
Credit cards can be used for remittance too. Money can be transfered from one credit card to another credit card through the Internet. However ,not all banks offer this facility.
Credit cards issued by banks in India can be used across the world,payment will have to be made in Indian rupees only.
Ultimately keeping you Credit Card Safe is you responsibility. Indeed, in a worst case scenario, if it can be proven you may have been negligent in keeping your credit card safe, you may find yourself liable for the cost of all transactions made fraudulent on your account should you lose the card. To help you avoid this, here are 5 basic credit card safety tips:
Never have more cards than you need
While it is always advisable that you have more than 1 credit card, in case it gets lost, you should never have more credit cards than you actually need to use. The principal reason why this is the case is because it becomes harder to keep a track of which cards you have and where you have kept them with the more cards you have.
Always keep a photocopy of your cards
How many times have you been asked what you card number is only to find yourself looking for your card to get the number? Now, what happens if you have a card stolen and no credit card statement to-hand? You have a problem! For this reason, it is always best practice to take photocopies of you credit cards to so that always know where to find the number should anything unfortunate happen to your card.
Always keep your receipts separate
Among the most important of the basic credit card safety tips you'll receive is never to keep your credit cards and credit card purchase receipts in the same place - because likely as not if you have lost your card, or if it is stolen, then you'll have lost or stolen the receipts as well. Now there is no way for you to vouch which transactions were yours and which where not - or, there is no way to tell which was the last genuine transaction you made.
Moreover, never keep a record of your PIN with your card, this is only asking for trouble!
Never give your account number to someone you don't know
If you are ever asked to give your credit card details to someone you don't know, or who as initiated a discussion with you (rather than the other way round) over the phone or via email, you should always refuse. Worst come to the worst, phone the card issuer and ask them if it is okay for you to divulge the information or phone the enquirer back. If the enquirer seems reluctant to accept this, you have to ask yourself why!
Never leave your account details open to public viewing
It may sound rather basic to say you should never let 'Joe public' see your credit card account details, but ask yourself this question: "How often have you received a publication subscription form in postcard format?" Now, suppose you complete this with your credit card details filled in. Suddenly half the world has access your credit card number, expiry date and signature!
What are Secured Loans?
Secured loans are one of the most popular personal loans options available today. Their popularity is based on the fact that interest rates are usually lower than other types of loan, and repayments are available over longer time periods.
A secured loan provides a means to raise a cash lump sum using some form of collateral on which the loan is secured. The collateral acts as security for repayment of the loan in the event that you are unable to meet your loan repayment commitments.
A secured loan is a loan where you pledge your home against the amount of money borrowed. In the event that you default on the personal loan, the lender can sell your home to recoup the loss.
A secured loan is a type of loan available to people with securable assets. Usually these assets take the form of property, such as a home; this is why secured loans are often referred to as 'homeowner loans'.
You do not have to own your own home outright to be able to take out a secured loan; if you have a mortgage you can put the proportion of the home that you own up as security.
Secured loans require some type of security to be provided to the lender. This security can be a home or other high valued possession. These items are provided to the lender as security or collateral in case the person who is taking out the secured loans does not repay the funds.
Secured loans are quick to arrange as property is always a good form of security for the lender. Consequently, the terms are normally better, with larger loan amounts, longer repayment periods and better interest rates than those you would obtain for an unsecured loan.
For people with little or poor credit history, a secured loan is probably one of the easiest ways to access credit.
Secured loans can be used for a variety of reasons including: home improvements, debt consolidation, mortgage arrears new car or luxury holiday.
The main benefit of a secured loan is that, typically, they offer a cheaper interest rate than unsecured loans. Getting approval for a secured loan is also a lot easier than for an unsecured loan.
If you are looking to borrow over a longer period of time and have assets available to place as security, a secured loan might be your best option to finance a large purchase, or to refinance existing debt.