Investing helps one in the future. All of us have goals in life, most of them require money. As your earning increases, your purchasing capacity also increases, which in turn increases your goals as well. It is always better to start saving early, so that it becomes easier to fund your future goals. Checkout our video to note few pointers on Financial Planning for beginners.
Risk Profiling: https://youtu.be/Ts_z3HBLsbk
Types of health insurance covers and which one should you have?: https://youtu.be/OydkJ7a22wA
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‘The only thing that is constant, is the change‘, remarked a famous Greek philosopher and he was not wrong. Everything in the world changes and so does your financial requirements. As you grow older, your financial responsibilities change as per your financial goals. You are, thus, advised to review your financial portfolio at regular intervals and ensure a sound financial plan. Do you do so?
If you don’t, you should start immediately. If you do, well, congratulations to you. While reviewing your financial portfolio is a commendable job, are you careful when you review? Most individuals aren’t but you should be. Here is a checklist of questions that you should ask yourself when you review your financial plan –
What are your present and future financial goals?
When you are young you want to plan for your future. When you start your family your children’s education becomes your primary goal. You might also want to build your dream house or go on a world tour. Whatever your financial goal you need to plan for it. Since your goals are dynamic, you should consider them when reviewing your financial plan. Find out which financial goals require planning for your present and future life.
What is your current disposable income?
Your disposable income determines the quantum of savings and the investment instruments which you can opt for. Since your disposable income might change over time, your financial plan should be reviewed in tandem with the changed income. If your income has increased you should increase your investments. If on the other hand, your income has decreased you might have to reduce your ongoing investments.
Related Article : Personal Financial Planning – Why Is It mandatory For All ?
What is the performance of existing investments?
The financial market is also dynamic. It changes continuously and so does the value of your investments. For instance, fixed deposits and other fixed-income investments are now promising a lower rate of returns than they did 5-10 years back. So, you should review the performance of your existing investments. If your investments are doing well you should invest more in the same. If, however, their performance has dwindled it’s time to switch. Redeem the low-performing investments and redirect your money to more lucrative avenues.
How much tax, are your investments helping you to save?
Investments become sweeter when they help in saving taxes. While some investments give you tax exemptions at both the investment and redemption stage, many give tax relief only at the time of investments. Moreover, there are some investments where you do not get any tax relief. Review your investments to understand how much tax you are being able to save. Try and maximize your tax saving potential by choosing investments that are tax-efficient and redeeming those which are not.
Do you have a sufficient contingency fund?
A contingency fund is essential to meet the costs of those rainy days when a financial emergency might strike. You should hold at least 6 months’ worth of your income in a contingency fund. When reviewing your financial plan make sure that you have planned for a contingency fund. If you have, check its sufficiency. If you haven’t, make it a priority in your financial plan.
Is your Insurance cover sufficient?
Insurance is an essential requirement. Both health and life insurance plans provide you financial security and help at the time of a financial crisis. Having sufficient cover is, therefore, necessary for both these plans. You should, thus, check whether the coverage you have already opted for is optimal or not. And for those who have no life or health insurance plan in their financial portfolio, having one of each is recommended.
Reviewing your financial plan is essential and keeping these questions in mind is the smart thing to do when you review. If you plan according to the above-mentioned questions you would be able to create a fool-proof financial portfolio that would not only meet all your financial goals, it would help in wealth maximization too.
Financial planning paves the way to achieve financial independence and plan a smooth retired life while one is still earning. Early planning provides a long horizon to multiply the investment. People of different age groups have different priorities, hence, each of them needs to plan accordingly to achieve their financial goal. Financial planning can have varied horizons and purposes for varied individuals; say, X is planning for his retirement by 40 while he is still 26 and Y is planning his child’s MBA program abroad after 16 years. Financial planning is a very thrifty affair. Proper financial decisions can result in amass disposable income.
Everybody has a desire to earn high, spend high and live a lavish life, but only a few can actually make that happen. Seriously, living a lavish and elegant life is not just a matter of destiny, but a result of proper financial planning and effort made to make it possible. Financial planning is very much necessary for an individual in a similar fashion as much it is for any business. It is simply about analysing where one is currently standing and then determining how he would like his future financial condition to look like. It is simply because of unending financial obligations and unpredictable journey of life, financial planning is required to be set in priority.
Why must Financial planning be taken as a need not a choice?
Financial planning is crucially required as there are limited sources of funds that need to be diligently allocated towards necessities and luxuries, also setting aside savings and paying off the debts from the same source. Since sources are finite, thus, financial independence can be achieved through routing the idle or accumulated funds into a proper channel which can help it multiply. It is always better to start early so that the benefit of compounding can be availed which acts as a driver in enhancing the investments with multiplying the effect.
One needs to be fully disciplined towards the financial planning mechanism. Developing a habit of regular savings and investment through proper planning is very essential for building a strong financial foundation.
Financial planning must be done with the view of achieving social security and financial independence even after retirement. Since nobody is aware or has the least hint of what is going to happen in the future, hence, financial planning can prove to be a favorable tool for tackling such unpredictable and dynamic phases of life. Proper planning can help one make provision for contingencies and build a sturdy financial status for oneself and family.
Read More :- Financial Planning For Newlyweds
How to start planning?
While planning for a delightful financial future, it is advisable to take help of a professional financial planner who has handsome experience and expertise in providing such services. Proper consultancy can lead to an effective plan. Financial planning can be done by making an investment in mutual funds, fixed deposits, endowment policies, equity and debt securities etc. Foremost thing in financial planning is setting the financial goal in accordance with the purpose and investment horizon; then comes the most critical part which is the risk profile of an investment; then choosing the investment avenues which can serve the purpose of such a plan. It is always safe to develop a diversified investment portfolio which can provide balanced risk and return. The financial objectives and investments need to be perfectly synchronised to avoid any financial distress.
Save yourself from manipulators- Do a reliability check
Financial planning, nowadays, is becoming popular among the younger generation who have just started earning with the vision of gaining independence and a bright financial future. The crowd of daydreamers has also resulted in an evolution of self-proclaimed financial planners who seek the most prominent opportunity to quench their unethical thirst. An investor shall use his discretion while hiring his financial planner who can keep his investments safe and secured. He should not fall easy prey to the mean-minded vultures that set up a pompous financial consultancy business to attract innocent investors. Most of them just turn out to be salesmen or agents who have the least knowledge about what they are selling and aim to earn part-time income. An investor should try to discriminate between a real and a fake financial planner by comparing the way each of them interacts with him; their counselling attributes; manner of gathering data; clarity in concept about financial planning; how prominently they are able to present the technical comparison between various financial plans, etc. Efficient and effective counselling can be done by market research and understanding the financial goals and requirements of a particular investor.
In a growing and rapidly evolving economy like India; financial planning by its citizens can be an aid to economic development. At least it is better that the economy receive funds internally than borrowing funds from foreign investors. Financial planning by people from all walks of life should be encouraged so that even the person who has the minimum can also feel the vibes of financial independence and security. A persisting myth among the masses today is that financial planning is only for those people with higher income or who have wealth in abundance. People from generations have been a victim of this misconception and grow older with the same mindset. Financial planning has nothing to do with the rich or the poor, one who has a surplus or one who has minimal; it’s all about managing what you have. Financial planning provides an opportunity to take control of your financial life, make diligent decisions and achieve desired financial goals.
What is wealth management?
Wealth management has a wider scope and has long term wealth creation as its primary motive. As such, wealth management can be described as a wealth creation process where a team of professionals analyze the financial needs of the client and suggest the appropriate financial products. Such a process would include wealth protection (risk management), accumulation of wealth (growing asset base), putting your wealth to work (creation of income from such asset base) and later wealth distribution (post-retirement and succession planning).
What constitutes wealth management?
1. Identification and analysis of values and financial goals
This step consists of various other sub-steps as below.
- Asking appropriate questions which will yield what actually the client expects in the long term and also financial goals of the client.
- Testing and understanding the risk appetite of the client.
- Understanding the liquidity needs at periodic intervals or at a particular point of time.
- Understanding family values and issues thereof
- Lifestyle enhancement and maintenance concerns
- Wealth transfer and succession plans
2. Recommendation and devising plan of action
Based on step 1, where the needs and objectives of the client are analyzed and identified, the wealth manager will devise and recommend the plan of action. Such a plan will entice an appropriate mix of assets, which will be recommended for generating income as well as for long term wealth creation. This step also digs deep into the actual asset creation and allocation of these assets seeking diversification for inherent risk management. Wealth manager also analyses the position of current investments and assets of the client. The wealth manager then will address any tax or liquidity concern and will also check if there appears any gap between plan of action and current investment scenario. This plan is then consulted with the client and if he is satisfied, then the wealth manager will go on to the next step. The different wealth managers will employ different techniques and models for devising the plan of action like after tax profits model, or discounted cash flow model etc.
3. Implementing the wealth management plan
Once the plan is approved by the client, then the wealth manager documents the plan of action along with the investment strategy and asset allocation strategy. This manual also explains the income generation pattern and long term wealth creation strategy. It will also throw light on succession plans and transfer of wealth and assets. Implementing the wealth management plan will require a little while. However, this plan is revisited several times by the wealth manager to match the plan real time with happenings in the economy and financial markets.
4. Continuous evaluation and consistent communication with client
The Efficient wealth manager will evaluate the way the plan responds to the current market scenario and will try to modify it to remain updated and reap benefits from the current scenario. It may require to rebalance the portfolio and ascertain changes to the tax structure and its impact on the wealth creation. This step would ensure uninterrupted communication and consistent support to the client, which will help build rapport and trust.
Now let us see some Wealth management mistakes which you should be aware of and should avoid.
Selection of right wealth manager
Where the wealth manager is assigned portfolio management and not the whole wealth management, then he would be responsible for only that part. This will harm the synchrony and synergy effect, which would have resulted if whole wealth management was carried out by a single wealth manager. While you select the wealth manager, keep in mind to select the one who has the ability and willingness to answer the questions asked by you.
Revisiting the wealth management plan
Once implemented, your wealth management plan needs to be modified and revisited periodically. This will include asset allocation pattern, restructuring decision and liquidity analysis on the basis of the current economy and financial market status.
Asking questions and ascertaining the position of your assets at any point of time would be your duty. This will allow you to monitor and evaluate the asset allocation and accumulation. Wealth manager has to ensure that he is delivering updated information about client’s wealth by maintaining confidentiality.
Retirement or succession planning
This is a delicate issue which involves a lot of family trouble, because the property and wealth quarrels may turn bitter once the client is gone. Hence, it is important to pay attention to succession planning and retirement planning.
Now you must have got a clear idea as to what Wealth Management all about. It combines both financial planning and specialized financial services, including investment planning, estate planning, legal and tax advice, and investment management services. Better late than Never. You can now get in touch with our financial experts for your wealth management needs.
No one is immune to making mistakes as we are human after all. But we should learn from our mistakes as well as other people’s mistakes. If you want to learn faster, learn from other’s mistakes specifically in personal finance as making mistakes in personal finance can be very costly. The purpose of this article is to learn from the common mistakes made by financially unorganized and inefficient people. Everyone suffers from one or all of these habits discussed here. We can identify some of these mistakes which we have made and accordingly change our habits to not repeat it again.
Overspending is a habit when we spend more than we earn. Spending on luxurious habits like buying gadgets, shopping, eating out etc. are some of the examples which leads to overspending. Impact of overspending on personal finance can be disastrous. It can lead to financial mess and debt trap. The best way to overcome this habit is to keep a track of cash inflow and outflow. By preparing a monthly income expense sheet and budgeting for future expenses will help us to control our cash flow efficiently.
Unplanned Financial Goals
One of the important parts of financial planning is prioritizing financial goals. We may allocate more resources to unnecessary or less important goals, if we don’t prioritize them. We may spend more money on financial goals like buying a car, bigger house etc. but it should not be at the cost of other important goals. To deal with such problems it is advisable to identify and prioritize financial goals. As per the principle of personal finance, we should first allocate resources to basic necessity and financial need of life. If we have additional resources then we can think about splurging on other aspirations of our life.
Lack Of Contingency Planning
Many people are not prepared for contingencies. Loss of Job, unfortunate events like death, disability, hospitalization of self or family members has huge financial and emotional consequences. Human behavior has a tendency to run away from difficult events. If you are not well prepared to deal with such a situation then it can have an unimaginable financial impact on our life. One of the behaviors of an individual is to assume that it won’t happen to you. It will impact people around you but not you or your near & dear ones. The day it happens it changes our financial life and future goals. It is always advisable to start financial planning by identifying risks in our lives and ensuring those risks sufficiently.
Chasing High Returns
Investors tend to invest in high risk assets class while chasing high return investment. Two of the most common behavioral emotions involved in investment are greed and fear. We tend to make mistakes by not thinking logically or rationally instead we use greed and fear to make investment decisions. It’s important to control these emotions and invest as per your financial plan. To negotiate this habit it’s important for investors to invest according to their asset allocation. This will help investors to deal with market volatility as well as help them to achieve their goals more comfortably.
Debt trap is a scenario in which we are unable to repay debt from available resources. People have habits to utilize easy money to fulfill their dreams. The easiest way to define debt is it’s a charge on future income. People take loans to fulfill their short term or long term goals. But it’s important to check our repayment ability and its impact on our financial life. We should ideally take a loan where it can be used productively and helps us to increase earning ability. Business loans, property loans for investing in income generating property etc. are few examples of good loans. Few of the examples of bad loans can be loan for buying consumer goods, credit card loans etc. We should try to avoid high cost loans and borrow in case if necessary.
Copy Paste (Ctrl C + Ctrl V) Approach
Copy paste approach won’t work in personal finance. Just by copying successful people’s style of investment by following it as it is can be disastrous. Every individual’s goals, objective, as well as their risk appetite, is different. Proper planning and goal based investment is an important ingredient of a successful financial plan.
Lack Of Succession Planning
There are so many instances in recent days we came across where legal heirs and family members are fighting for family assets and properties. It’s important to nominate, prepare will or trust to transfer your estate to your beneficiary. Many people fail to write a will or do their succession planning. Later on, their family members fight among themselves for property and assets. There is no specific age to plan for succession. Preparing will is important for succession planning. It’s an important aspect of financial planning.
How to overcome these habits?
Financial planning helps us to overcome these habits and to be more organized in managing our personal finance. It’s important to follow best practices while managing money. Making a financial plan and keeping a track of financial fitness is key ingredients to financial success. Financial Planning is nothing but a goal based planning.
To know more about Financial Planning, Must Read – https://www.mintyapp.in/blog/category/financial-advise/financial-planning/
Money management for kids? Really? Yeah, they are growing up in a very high paced and global environment, where they would need to manage their every penny. This is not an easy task as you know it, so why not start early? Good habits die hard and this money management habit will really help them a lot in future. So let’s start!
Pocket money or monthly allowances can effectively be used as a method to make kids understand about money management. It will help kids learn about financial planning as below:
- Constraint on resource availability
Limited allowance or pocket money has to be effectively planned and applied for their various needs.
- Prioritizing the needs
The children understand and try to prioritize their money needs because there is a restriction on the allowance. For e.g. the kid will need to place either chocolate or ice cream first. And even toys may line up later.
- Expose them to decision making
When they are faced with any dilemma as to what to put as a priority, you can just encourage them to make a choice.
- Surplus or deficit management
When the children overspend the pocket money, then they may come to you for additional funds. At such times, you may inculcate budgeting habits which may stop them from spending on unnecessary things.
- Saving habit
Teach them how one rupee saved a day makes up Rs.30 at the end of the month. Seeing how much extra they would buy with such saved money may encourage saving habits.
Must Read : FINANCIAL PLANNER-THE NEED OF THE HOUR
Piggy bank or bank account
If your child is below 10 years of age, you can always bring in a piggy bank for saving the money. This will encourage the kids to save more rather than spend impulsively on unnecessary items.
If your child is above 10 years of age, it is better if you introduce them to the banking system by opening a bank account in their name. For e.g. SBI has a specialized category of saving account for children above 10 years, which has no restriction with respect to minimum balance maintenance. Such accounts may be easily handled by the kids, which will introduce them to banking operations as well as inculcate saving habits (you can show the interest rate given by the bank to them so that additional income in the nature of interest will attract them to save more in the bank account).
Don’t feel guilty for saying no
There are some times when you need to refuse the demands or tantrums of your kids. There is no reason feeling guilty about it. Refusing expensive and recurrent unnecessary things like toys, clothes etc. will not make you a bad parent, but just the opposite. Your children will thank you for this when they grow up.
Teach them the importance of budgeting
While you are at it, teach them how to carry out budgeting by prioritizing the expenditure and recognizing necessary expenditure. Also, encourage them to earmark a particular amount of money for forthcoming bigger expenditure. This will also help root the saving habit in your children. Once they get used to budgeting, they will themselves find the ways to save more.
Shopping lets your decision making skills and bargaining power out. So next time, you make a trip to the local market or a shopping mall, please take your kids with you. They will understand the importance of price comparison and paying for its worth. Let them understand that expensive items are not necessarily better than others.
Also, they will be able to make their decision and make a choice when in the dilemma of facing a variety of alternatives. This will expose them to recognize, compare and select the best suited alternatives.
Be a role model yourself
Children are the best observers and they imitate their parents most of the time. This is both beneficial and disadvantageous in the sense that they will observe your behaviour and thinking pattern in financial matters and will replicate the same for them. So be careful while dealing with financial decision making matters when your kids are around. For e.g. If you make an impulsive shopping at a mall with your kids paying close attention to you, next time they are sure to demand expensive or unnecessary items from you.
Must Read :- Sovereign Gold Bonds – Should you invest?
Financial matters just don’t concern your financial health but also social contribution. Your kids need to understand a valuable lesson of humanity, for which they should donate or make charity. This is an important lesson in life, where your kids will also learn the importance of sharing and human values. So encourage them to make charity or donate for the underprivileged.
Financial planning is a continuous process of learning and implementation. If you start with your kids at an early age, your kids will definitely grow up to be a financially responsible person. This will not only help them to deal with financial decision making but also tackle financial crisis at any age.
In the Union Fiscal Budget 2020 unveiled by the FM, Nirmala Sitharaman announced a new and simplified income tax regime with revised income tax slabs and tax rates. This new tax system is optional to the taxpayers and it is not mandatory to opt for a new tax regime. To put it simply, the assessee can either choose the New Tax Regime or continue to follow the Old Tax Regime depending on what is best suitable from a tax planning point of view. As we have entered into the new Financial year 2020-21, it is important that we start planning for our taxes now. But this year, the first step in your tax planning would be to decide whether to go with the old tax regime or new one.
It is not very straightforward to decide and there are many things which you need to consider while making this decision. So let us start by understanding the change in slab rates in the following table:-
As you can see in the above table, the New Tax Regime has proposed lower income-tax rates, for income slabs up to Rs 15 lakh but the catch here is that the option for such a concessional tax regime requires the taxpayer to forego around 70 specified exemptions and deductions. Some of the major ones which are availed by most taxpayers include: –
- Standard deduction of Rs 50,000
- House Rent Allowance
- Leave Travel Allowance
- Deduction under section 80C of Rs 1.5 lakh which includes ELSS, PPF, life insurance premium, repayment of principal of housing loan etc..
- Interest paid on self-occupied property of Rs 2 lakh
- Health Insurance premium
- Interest paid on Education loan
So now the question arises, how does one actually choose which regime is better? To understand the implications of opting for either of the options, let us now look at the pros and cons of both tax regimes.
Pros of the new tax regime:
- Enhanced Liquidity: With more disposable income in the hands of the taxpayer due to lower income tax rates, assessees who could not invest in specified instruments due to certain financial or other personal reasons can now do so.
- Reduced documentation: As most of the exemptions and deductions are not available, the documentation required is lesser and the tax filing is easier.
- Flexibility in investments: The new regime provides taxpayers with a flexibility of customising their investment choices as per their wish. As earlier one was required to invest in certain prescribed investments only, to avail tax benefits.
- Some Exemptions are still allowed: There are few exemptions that are available in the new tax regime. Income from life insurance policies, retirement benefits, employer contribution to NPS under 80CCD(2) and Section 80JJAA [i.e. for new employment] are some which can be claimed.
Cons of the new tax regime:
Forgoing the Deductions: There is one but it is the biggest disadvantage to let go of almost all the exemptions such as Leave Travel Allowance (LTA), House Rent Allowance (HRA) etc and deductions available under chapter VI A of the Act that grant deductions under Section 80 such as 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80EE, 80G, 80GG, 80GGA, 80GGC, etc.
Pros of the Old System:
The old system inculcates a good saving system by enforcing investments in certain tax-saving investments. If individuals are left on their own to invest, they are most likely to not to do it. So the old tax regime provides a disciplined approach in investing by providing tax benefits on some investments. These investments provide for long term goals of an individual like retirement, children marriage and higher education.
Cons of the old system:
- Less Liquidity: In order to reduce tax outflow, taxpayers invest in certain investments to avail the maximum deduction which in certain cases leaves them with less liquidity which discourages.
- More Documentation: With the need to submit investment proofs to claim deductions, a taxpayer has to file a lot of documents which takes away some of your time.
- No Flexibility in investments: Even if the investor wants to invest in funds which are performing better, the investor can not, and has to invest in funds which are mostly risk-averse in nature and may not provide significant returns over the period of investments
Now that we have seen advantages and disadvantages of each option, let’s take a step ahead to see some calculations. Below table shows the minimum deduction amount to claim in old tax regime to make it a better option than new tax regime.
Let me explain one of the examples from the table. If a person earns 10 lacs of income and if he manages to claim a deduction of Rs.1.87 lakhs or more, then the old tax regime will be beneficial for him. But if he can claim a deduction of an amount less than 1.87 lakhs then the new tax regime will be beneficial. By looking at these figures, in most of the cases, old tax regime will be beneficial as people are able to claim this level of deductions
To conclude, I would like to say that in order to decide which option is better for you, calculate your tax outflow according to both the options and go for the one which has the least amount of tax. Also, keep in mind the pros and cons that we have discussed to make an informed decision.
Coronavirus outbreak has impacted the entire world in more than one way. Every human being has felt the effects of covid-19, be it socially, financially or on health. COVID-19 cases crossed 19 lakhs globally and around 1.25 lakhs turned fatal. In India, the number of cases is in control but still has in 3 weeks crossed 11,000 mark from just 550. The growth in covid-19 cases is increasing exponentially.
With the extension of the lockdown in India till 3rd May 2020, the lives of many have come to a stand still. It is now up to us how we make better use of this time and keep ourselves mentally stable. The impact will be long term and therefore in this post we will understand the impact of this pandemic on one of the long term goals i.e. Retirement.
Retirement planning is very crucial for every individual. The moment you start earning, you should start planning for your retirement. With people living longer, they need to plan well if they want to continue with the lifestyle they have before retirement. Let’s see how this pandemic impacts your retirement planning and what you should be doing.
Are you already retired?
If yes, then either your retirement plan would have already been made or you are making adhoc withdrawals from your investments. For ones’ who are retired, they must have some withdrawal strategy in place. Either, you are getting a pension from your employer, getting pension from annuity plans or an SWP strategy from your mutual funds. SWP is systematic withdrawal plan from mutual funds, where in a fixed amount can be withdrawn from your mutual fund investments and credited to your bank account. If you are using this strategy which is a good strategy to follow as it is tax friendly and provides good returns, it is time to review from which funds you should be withdrawing for coming 9 to 12 months. It is highly recommended that you consult a financial advisor for the same who will guide you basis your portfolio and your risk appetite.
Also, make sure that you write a will so that your assets are protected. Issue power of attorney to a confidante who can manage things on your behalf if you fall ill.
Are you planning to retire in next 12 years?
People falling under this category are still in the accumulation stage for their retirement. This means they are investing regularly to create a retirement corpus in next 12 years. Important thing to note here is that no need to panic because of the current market volatility. You may see your retirement corpus falling in value but do not redeem your investments in share market. As we have seen in past, after every virus outbreak, the markets have regained within a year. So this is the time to show patience. And remember you have been investing for a long term goal so redeeming looking at short term volatility is not advisable. If we talk about debt investment options, interest rates have fallen. Let’s have a quick look at it.
As you see lower interest rates, do not invest too much into these instruments as this will not help you to grow your wealth.
Another important point to note is that individuals should get rid of all loans before retirement so that it does not eat into the corpus. We understand that it might have become difficult for many to continue paying the EMIs amid COVID 19 because of pay cut or job loss or business losses. But it is strongly recommended that you give this the first priority to continue your EMIs. Try reducing unwanted expenses at this crucial time to keep float with your EMI payments.
Is your retirement more than 12 years away from now?
You have enough time in hand and in fact you should be looking at current market as an opportunity to invest more to create your retirement corpus. Always remember, early you start, better it is. As you need to invest small amounts which doesn’t hurt your pocket much owing to your other commitments. All in all, retirement planning is a long process. When you are young, your risk-taking capacity is high, which allows you to earn a higher rate of return. This is the time when you can start building a corpus for life after retirement. So for people in this stage, it is suggested that you invest more looking at the very sharp correction in the market.
I would also like to say whatever stage you are at, it is imperative to keep a contingency fund in place. Every retirement plan is incomplete without making provisions for contingencies. So make sure you have at-least an amount equal to 8-10 months of your expenses as an Emergency fund. You can park this money in Liquid Mutual Funds.
I hope that all your queries related to your retirement planning is answered here. I would further suggest you to get in touch with a financial advisor to get your retirement plan back on track in this current pandemic situation.
How do we define financial success. High salary or huge bank balance. High salary or huge bank balance won’t make you rich. Finally, Amount left with you after paying off your debt is an important deciding factor for financial success. To know this you need to calculate your Networth.
Networth helps us to know how much we have incase if we sell all our assets and pay off all the liabilities. Networth provides snapshot of financial position at any given point of time. If we know our networth today, it will help us to know are we on track or off track of achieving our financial goals. It will help us to know end result of income earned and money spent till now. Networth help us to evaluate our financial health and true picture of our financial life. We can view Networth as financial report card to keep a track of our financial life and take corrective action required in case we are off track.
Let’s understand how to calculate networth.
The first step to calculate Net worth is to list down all the assets we own. This may include
- Bank, Cash and Liquid Mutual Funds balance – It includes cash in hand, bank balance, short term FD (less than 90 days) and liquid mutual funds scheme. All the assets are very liquid assets.
- Financial Assets – This includes your investment in Equity shares, bonds, Non-convertible debenture, Company & Bank FD, MIS, NSC, KVP, PPF etc. All are considered at their current value.
- Real Estate – Real estate includes current market value of properties including residential house, Land, commercial properties etc.
- Personal Valuable & Assets – Includes personal use assets like Motor Vehicle, Jewellery, Painting and other valuable personal assets etc.
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Next step after listing assets is to create list of Liabilities which may include loan or debt payable to banks or money borrowed from others. This may include
1. Housing Loan – Balance outstanding in the loan to be repaid to the bank or lender
2. Car / Vehicle Loan – Balance liability payable to bank
3. Personal Loan – It includes Outstanding balance to be paid
4. Consumer Durable Loans – It includes Outstanding balance loan on consumer durable like Laptop, TV etc.
5. Credit Card Outstanding – Outstanding balance on your credit card.
6. Other Loan – It includes balance on other type of loans like mortgage loan, loan on jewelry or loan from friends / relatives
We can calculate Networth by subtracting Liabilities from Assets or as per given formula
There are three possible outcome
- A negative net worth means you have less assets and more liabilities or in other words you owe more than you own.
- A positive net worth means you have more assets and less liabilities or in other words you own more than you owe.
- Your Networth is Zero when your assets equals Liabilities
Ideally at any point of time in your life your networth should be positive. But due to possible trade off between needs and wants it may happen in the initial years of our career i.e. between 20’s and 30’s we may have negative networth. But our aim should be to create positive networth as we get closure to retirement i.e. in 50’s and it should keep increasing.
One of the important Role of financial planning is to help us keep a track of networth and take right financial decision. Our action should help us to increase networth instead of keeping constant or decreasing it. Decision taken in isolation like investment or savings without preparing or following financial plan could have negative impact on networth.
To conclude, networth helps us to know where we stand financially. This will help us to take right financial decision and we are better prepared to achieve our financial goals. Keep a track of Networth and be financially healthy.
We all have certain goals in life, things we wish to achieve, cars we wish to buy, countries we wish to visit. Inflow comes in form of earning from a regular 9-to-5 job, business or other sources. But seldom are we able to attain our goals in spite of having adequate financial resources. The main reason behind this lacuna is the inadequacy of financial planning which otherwise imparts a direction to the journey towards goal fulfilment and financial freedom.
- Timely planning of finances aids in money management which paves the way for easy allocation between monthly expenditure and meeting the savings target.
- Careful monitoring of expenses and spending pattern and bringing the same under control pumps up cash flow which can be reinstated with prudent spending, tax planning and capital budgeting exercises.
- Overall capital accumulates faster with increased cash flow which can now provide you with greatest investment opportunities.
- Financial planning seals the security perimeter of your family especially when they are in dire need of the same. Having mediclaim and insurance coverage brings along through peace of mind.
- Windfall occurrences can throw you off the track. A carefully thought out portfolio with ample liquid alternatives can help out in such emergency scenes.
- Financial planning makes us all the more responsible and disciplined while dealing with money matters as now you would think twice before splurging to your heart’s content.
Financial decisions impart meaning and direction through in-depth financial planning. It helps us in understanding the inter-relationship between various financial decisions and up to what extent they affect our other financial areas. For example having a certain mutual fund in our portfolio can insure us during the golden retirement age or help us in faster mortgage pay off. By keeping a holistic view you can gauge both long and short term effects of the same in propelling you towards or moving you away from your life goals. Having set aims assists with greater security and easy adaptability to a changed scenario.
Think of them as the doctors of finance who can cure your monetary ailments with advice which can surely bring upon far-fetched benefits. They survey financial situation of every single patient visiting their clinic and suggest the perfect cure which can bring the best of tax saving, retirement planning, investment guidance and budgeting advice. The planners might alternatively also work toward transforming a certain financial aim of yours into a heart-warming reality. The hawk eye view approach of these planners sets them a class apart from the advisory folk who predominantly focus on just a particular jurisdiction.
Self-sufficiency in Financial Planning
The pursuit of financial happiness ends with a dynamism which gets accentuated by a large number of magazines, websites and self-help books summing up the entire territory of financial planning within a couple of pages for those who would rather do some personal research than barge upon experienced financial planners. However, you might pay your planner friend a visit in the following scenarios:
- If you wish to herald an improvement in your current financial stand but are clueless about where to start from. Click here to get advice from experts!
- If you are in need of professional level expertise which casual browsing of self-help books can’t give you. For example, a trained financial planner can evaluate the risk level of your investment portfolio and adjust the same according to changing family circumstances.
- If you feel the sudden need of guidance after unexpected events such as unplanned birth or untimely death of close family member which brings down your self-planned financial castle.
- If you wish to verify the soundness of your drafted plan with certain experts who know the business like the back of their hand.
The Financial Planning Steps
- Goal setting :- Having clearly defined goals makes the journey towards attaining the same much easier. So rather than wishing for a comfortable retirement life decide upon the total corpus you wish to build before retiring and monthly allowance you wish to reap from the same to sustain your livelihood.
- Understanding the deep-rooted effect of every financial decision taken :- Proceeding with a certain investment plan promising lucrative return may actually bring along a heavy tax burden which can have a negative effect on your overall estate planning. Every decision taken in the financial plethora are related to each other. You need to keep this in mind before proceeding with a certain decision so that they don’t harm any other aspect of your daily finance.
- Periodic re-evaluations :- The ever-changing financial planning process might also alter the goal you wish to attain at the end of a certain time span with changes in lifestyle and associated circumstances like marriage, inheritance, house purchase, birth, job change etc. Thus constant revision is necessary so that these changes get reflected in your portfolio and you can stay in loop with the next in line goals.
- Start early :- Being a late bloomer in the field of finance will distance you further from the financial enlightenment process. Developing good habits such as budgeting, saving, investing and constantly reviewing finance decisions from an early stage will position you better than those who start late.
- Realistic expectations :- Remember that you cannot bring a paradigm change in your financial standing overnight. It is a continuous process rather than a day’s job. Events such as variation in interest rate, stock market corrections and inflation are totally beyond your control but might alter your financial stand for better or for worse. Thus it is advisable to keep realistic expectations from your investments with handsome buffer for negative events lurking around the corner which might have detrimental effects on your pre-defined financial plan.
Financial Planning Myths Busted
Myths surrounding the financial planning segment are plenty but thankfully financially literate people are busting the above-mentioned myths on a regular basis and showing others the right way ahead.
- Wait until a monetary crisis to start with Financial Planning: On the contrary, planning of finances should be started since the very beginning of your career so that minor setbacks can’t cause widespread damage to your normal life flow.
- Financial Planning can be afforded only by the rich sector:– Financial planning is for everyone who wishes to set money goals, organise their finances and draft a plan for reaching those goals. It is true that certain financial planners target only the wealthy group but the majority provide affordable services irrespective of the income or net worth of the client.
- Go ahead with financial decisions without thinking of consequences: When we are engaging in financial planning to safeguard ourselves from the uncertain future, then why should we travel the same path with our choices? Current actions should be well in sync with future aims we have in store. If you have plans of buying a new car after 5 years then you should engage in such financial planning which will push you towards this goal as a lump sum received at the end of the seventh year will fail to solve the crisis created at the end of the fifth year.
- Start with the planning part once your hair starts showing grey strands :- Retirement planning remains to be one of the foremost causes of financial planning amongst the growing urban population. While we are young and working we have ample funds at our disposal. But with age increases responsibility which makes retirement funding all the more difficult as you will have immediate issues to attend to like school admission of children and medication of aged parents. Starting out early always brings along heaps of benefits.
- Seeking help from Financial Planner means losing control over your portfolio :- Certified financial planners usually surpass the minimum industry requirements of the regulated finance spectrum. You will be appointing them as your watchdog. This necessarily does not mean that they will become the sole controller of your wealth. The final call will always rest upon you, the planners will merely be your advisors.
- Tax planning is the core objective of Financial Planning :- Just like investment value appreciation, tax planning also forms an essentially functional element of financial planning but it surely is not the core aim. Financial planning holds a holistic view of the customer’s entire wealth of which tax planning is just a small part.
- The Financial Planning drill ends with the hiring of a certified planner :- The truth is just the contrary. Appointing a home tutor will not ensure that your child will score top marks. You need to overlook his education from time to time and assess his knowledge level through occasional tests. The financial planning also does not end once you have entrusted a planner with your wealth. You need to keep a check on the same and report negative variations whenever you see them.
- Investing and Financial Planning are two sides of the same coin :- Investing undoubtedly helps in portfolio building but financial planning is a broad concept which brings insurance, budgeting, retirement planning, estate planning and WILL Planning under its purview.
Even the top seers cannot predict the future with 100% guarantee. But having a sound financial plan in place can surely help out in tiding over turbulent times.