‘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.
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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.
Mastering the subject of personal finance might not be everyone’s cup of tea. Luckily, it is not always required to master the intricacies of everything when you can hire professionals who are well versed in the same. Today we are going to take you through the reasons of prime importance to hire your own financial advisor from the very onset.
- Holistic Analysis
Financial consultants can assist you in developing a big-picture and comprehensive analysis of your finances. Rather than being just one thing, personal finance is more like a constellation of concerns comprising investment, savings, estate planning, retirement planning, tax preparation, and many more. For gaining complete success in the field of finance, you need to have a robust plan in place which will address individual issues in a responsible and intelligent fashion. Your personal financial advisor might thus seek input from you whenever required for planning every specific area with greater detail.
- Creation Of An Investment Portfolio
Top financial advisors hold the view that 90% of our investment returns are a direct function of asset allocation which comprises the money invested in bonds, stocks, mutual funds, and similar vehicles. However, some people might feel too intimidated by the same due to the conflicting investment information for deciding on the ones which need to form a part of their corpus. This is where financial advisory services can come into your aid coupled with ample experience which arises out of helping other people in setting up their investment portfolios. You can thus rest assured that your funds will be in the best hands as the financial consultants set up automatic transfers for adding money to your investments after scheduled intervals.
- Tax Preparation
Tax preparation stands out as one of the most dreaded personal finance errands and only a few professionals who understand the intricacy of tax code enjoy dealing with the preparation of tax records. This is another area where you can seek out the assistance of financial tax planning services for filing your return in the correct format and within the stipulated time frame.
- Estate Planning
Contrary to popular belief, the estate comprises of all your assets including investments, businesses, real estate, insurance benefits, legal rights, etc. And without a proper plan in place specifying the division of all your properties, in your absence, it might get difficult for your beneficiaries to inherit whatever you intend them to. This is where the best financial planners in India come in to bring together all wills and documents to guarantee the division of your estate in accordance with your wishes. The legal complexities, as well as consequences that might accrue in this field, can prove out to be highly complex for laymen making the interception of professionals mandatory.
- Setting Proper Savings Goals
Personal financial planning advocates the inculcation of savings habits for building a solid financial foundation. Your options are bound to expand with the greater quantum of savings at your disposal whether you are helping your child with higher education, building your dream house, or paying for your parent’s medical bills. Financial planning experts understand very well that saving for a particular reason can boost you up a lot more than saving vaguely. This is why they assist us in developing specific goals over both the short and long term to help us stay focused.
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A fact find is conducted by financial advisor companies wherein detailed questions are enquired about your circumstances, risk appetite, and end goals after which financial products are recommended to the end-users in sync with their suitability and affordability. Certified financial planners can offer a plethora of services ranging from investment and general financial planning to more specialist advice. So, appoint a financial advisor to take care of your money matters today and devote your precious time and attention to prospering other work fields.
Financial Planning is about a lot more than just making investment decisions. It’s a more holistic approach towards your finances. Therefore, it is important to prepare oneself to learn managing money matters. This blog focuses and shares how you should give yourself a fresh start and boost your savings.
As it is said that “Money is hard to earn and easy to lose; you should guard yours with care”. So let us have a look at some of the tips for financial planning that will help you to create a strong financial base. This will even make your upcoming years financially better:
- Have a glance at the big picture:
You must understand your overall credit, savings as well as debt picture in order to know well in advance where you actually stand before setting your goals. Your credit savings would help you a lot in order to make the better financial planning. This will help in making the future plans with confidence. Besides that, you could brief out your future financial goals that you have to achieve in the near future. This will ultimately help you to reach the biggest financial goals of your life.
- Monitor your monthly expenses:
Keep an eye on your spending and monitor each and every expense – be it small or big spending. At the end of the month, you could tally up all yours spending and find out whether it exceeds your budget! Work on those areas where you can do cost cutting ultimately saving the excess amount that can result in monthly savings. This can boost your financial condition as you can use it to pay your own debt. You can even be flexible with your budget. List out all your monthly expenses and look at the total. If the total exceeds the budget, review your expenses and even cut them down or extend the timeline as per your need, requirement and priorities.
- Prepare rough timelines for saving:
If there are a number of goals you are wishing to fulfill at the end of the year, list down the goals and divide the amount that you need to save for each goal by the total number of months until the deadline. This rough timeline can prove to be a better opportunity in saving the amount you need to fulfill your goals.
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- Reallocate your investments
There has been observed a great volatility in the equity values and so it is better to do stock allocation as it will offer a great return on value for long-term performance. Depending upon your risk profile and asset allocation, you can rebalance the portfolio.
- Don’t just plan but actually, invest for long term benefits
I am sure you must be planning to invest for long term benefits but never be able to do so, right? This year just stick to your decision and develop an investment strategy that could help you in building strong financial background for the upcoming years. It is said that success in investments is a marathon and not a sprint which you should believe and do something to reap long-term benefits
- Stay out of debt
Debt is like a parasite that always keeps you low, especially in financial management. Plan your finances in such a way that you stay out of debt this year. Also, if you have some previous loans, make sure that you build strategic debt management plan to get rid of it. Try to pay down most expensive debt first and then proceed towards smaller ones. Once you are debt free, plan to spend smarter in future to avoid any future debts.
- Reviewing insurance coverage
It is advisable to review your insurance coverage on regular basis in order to ensure that the amounts of coverage are still consistent with the original needs and intent. This covers each and every insurance policy that you have subscribed for like the life insurance, health insurance, homeowners insurance, car insurance and much more. It will ensure to grant you secure life while reevaluating your beneficiary designations as well as coverage amounts after major life events.
Thus, these were some of the most beneficial financial tips that you must know. It is great if you plan your finances accordingly and save as much as you can while spending smartly. This is how you will cherish successful financial planning for this year and many more upcoming years that are yet to come. So plan better, save more and update your investment strategy!
Turning 30 years just presses the panic button, as you know that 20’s are over. You are still earning and are married and some of you are blessed with kids also. This just underlines the need for financial planning which will carve your future finances. Here is how you will deal with financial planning which will place you in the most convenient position.
Early Financial planning
- You may think that you are quite young to save and invest. But, in fact, this is a perfect age to start saving for secured financial future. Inflation is your worst enemy who will eat up major chunk of your salary.
- Education is a highest rising cost, planning for the education of kids would be your major concern. Education costs are rising double as compared to rest of the wholesale inflation rate.
- Marriages are set in heaven, but spending is done by the parents mostly. So, you have to plan for this expenditure also.
- The key point to remember is that money need in the future should be discounted by a minimum of 6-8% inflation rate. You have to consider that at least 6-8% proportion of your future income and returns on the investment is going to be taken away by then prevailing inflation rate.
- So, try to estimate how much will be needed in future for marriage or education or both. This can be easily estimated by considering the current costs and adding up at least 10% over and above such costs.
- Always invest in any instrument which will not lock your money, when you need it most. So, if you are investing in PPF or Gold ETF etc. for securing kid’s education or marriage, it may not be worth it. Instead, try investing in equity and debt in 40:60 ratios depending upon your risk profile. Also, you need to maintain a flexible budget, because the core investment demand may change due to unpredictable reasons.
- If you buy a term insurance plan in your 30’s, you may be able to get lower premiums for the reasonable sum assured. Also at such young age, there are very few medical checks. In case you are yet to opt for health insurance too, pre existing diseases may create a horror in later life. Early stage health insurance policy would ensure wider coverage.
- Anyway, you will be at major risk till you opt for term insurance policy. This is because, sudden emergencies would not be covered and financial liability will have to borne by the family. So, it’s better to go for an Insurance policy at least at 30 years of age. This will ensure wider span for protection and will also entail lower payouts in terms of premiums.
- Points to remember are that term insurance should cover you till minimum of 60 years of age.
PPF (Public Provident Fund)
- PPF is a long tenure investment which has E-E-E tax pattern. This means investment in PPF will allow a tax deduction under section 80C. Contribution to PPF during the lifetime till maturity is tax free. Also the amount received on maturity along with interest is also tax free and is declared exempt.
- However, the lock in period is 15 years, which means that you have to invest in PPF and forget about it for a long time till you actually enter 5th year. Partial withdrawal is allowed from year 5 subject to certain conditions.
- Even though PPF gives you an attractive interest rate, you have to be ready to depart with liquidity with respect to amount invested. Primarily PPF investment aims of retirement planning, hence you should determine how much amount you require post retirement. There are several PPF calculators available online, which will help you arrive at the amount to be invested. The Only point to remember is that you should be okay with lower liquidity during the PPF lifetime of 15 years.
- You may think that your spending is very less but at the last week, you may wonder, where does all money go? There is an answer to this question – Expense tracker. Expense tracker actually counts each and every paisa of your hard earned money. Just like your father did, remember? You will have to be answerable to this tool and it works wonders. Now you may understand that you are spending almost half of your salary on clothes alone. These expenses may be in very less amounts, but will add up to larger amounts.
- So what are you thinking? Download expense tracker or any money managing app, and be relaxed that every paisa will be counted there.
- Once a wise man said that nothing in life is certain except death and taxes. So keeping in mind both, you have to plan for both. Financial planning has to be carried out by consulting your financial advisor who will consider the tax aspect.
- However, you have to keep in mind that life is full of surprises and you can’t be sure that you will always get a happy surprise. Ideally, you should invest money for emergency in any Flexi Fixed Deposit account, which gives an FD rate of interest on balance and at the same time acts as your savings account. Money can be easily withdrawn from this account using your debit card, after which there will be no interest on this amount. Alternatively, you can also invest in Liquid Mutual funds which may provide you with better returns along with liquidity.
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- This was just a summing up on important pointers. However you would feel the need to consult your financial advisor who will help you out in financial planning. Everyone has independent salary structures and different financial goals. So it is actually imperative on your part, to lay down every income and every expense (at least major) and your expectations from financial planning to your consultant. He would be able to advise exactly where to invest your money in. Financial Planning may include investment in Equity, Mutual Funds, Debt Funds, Insurance etc.
Turning 30 is not scary, however it is the age where you have to start your financial planning. This would be the perfect age to implement your financial planning phases. So do not delay any further and start to take control of your finances.
Financial planning is relevant as well as vital for all the age groups. So, whether you hire a professional to do it for you or you prefer to do it yourself, we are giving you the tips for financial planning for every generation. This will either help you talk to your financial planner or will help you determine the investment strategy if you are going to do it yourselves.
The ones in their prime – young adults in the age group of 25-40 years
This is the young generation or generation X, which has started off the career recently or are just stepping up the ladders of their career. This is the phase, where these young individuals have started earning and there are new responsibilities like marriage, kids etc.
Budgeting includes estimated income and expenses which would include short term, long term and medium term financial decisions. It is always better to identify the nature (short, medium, long term) of expenses and adjust them against your income.
Start early to save
When you start saving at much early age, it grows up to be much bigger corpus in the long run. Compounding effect is the factor which will increase your corpus if there are more years to earn, even if rate of return is lower on such instruments.
Invest in equity and related instruments
Equity exposure yields superior returns over and above the average returns earned by conventional financial instruments like bank Fixed deposit etc. This is what makes equity investment attractive and hence at this age group, it is better to have equity exposure at about 60-70% to reap extraordinary returns.
Restructure your debt
If you are thinking of house purchase as a medium term or long term objective, then it is implied that you are going to borrow for the same. Clear and higher credit score will ensure smoother loan processing for such loans. Such credit score can be achieved through timely repayment of interest and principal.
Ideally, you should maintain 3 months cash balance as your cash buffer for any emergency situation. This emergency fund should be only released in case of sudden job cut or unforeseen event like accident, etc.
Invest in tax saving instruments in such a way that your tax deduction limit is exhausted, but not more than that. This will ensure optimal tax position and will also ensure that you have invested a minimum of the threshold.
The ones in the saturated phase –adults in the age group of 40-55 years
This age group is well settled and battling with rising expenditure but also with golden line of increasing salaries. This phase also features bigger decisions like house purchase, school and college expenditure etc.
If not done yet, you must take a life insurance for securing your family’s financial worries, even when you are not there. You should also take health insurance as your health care expenditure will escalate with the age and so will the premiums for the health insurance.
This is the most important long term goal which will be a medium term goal now. You should divert more and more resources towards retirement portfolio, once you meet with your necessary expenditure.
Get rid of loans
If you can afford, it is better to pay off the personal loans, which do not result in any asset creation or wealth building. This will enhance the liquidity position which may be very important at this age to meet with any unexpected situation.
Save first and then spend
This is the age where you should save more to accumulate more for your retirement portfolio or kid’s education portfolio.
For those in the higher tax brackets need to manage their tax positions well enough to manage exempt incomes and tax free incomes. This will enhance your effective rate of return on any investment.
The wise ones – Senior citizens in the age group above 55 years
The individuals in this age group have mostly completed their service or are about to complete their term. This is the period where individuals need post retirement income and will be dependent on such income stream as there is no employment income.
You should maintain a cash buffer for accommodating the contingent expenditure, especially health care expenses. This is very important as liquidity is important factor at this age.
Allocate your income stream appropriately
Your pension or annuity should be applied to appropriate purposes, like necessities (survival expenses). If you spend on unnecessary things, the you will be left with no money to spend on necessary things.
It is better to have a WILL for the possessions to distribute them to your loved ones. This will ensure appropriate distribution of your inheritance and the surviving spouse will be left to no one’s mercy, if you plan accordingly.
Financial Planning differs at every stage of life and hence is different for every generation. We have summed up important points for every such age group which will provide a basis for the financial management.
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.