Financial Planning For Retirement – The Must To-Do Thing When You’re Young
Let us begin with two different situations. First of all, all of us would like to enjoy free time without any professional duties aching us. It is needless to say that having such unperturbed leisurely time free of professional worries requires a solid financial standing.
Now consider the second situation. After reaching 60 some people still wish to go on working for few more years just because their savings are not enough to meet the cost of living. Moreover, we all know the financial insecurity associated with old age.
So, on the one hand, we have the dream of living an unconcerned, happy life free of professional and financial worries and on the other hand, we have all the worries, insecurities and instability of old age post-retirement days.
Now, let us ask you straight, which of these two situations do you want to fit in? Or, better to ask you more precisely, which situation fits your financial reality best? Did you assess your financial condition and the possible outcome of this in detail? If not, this is high time to have a complete assessment of your present situation and the days ahead.
While the first situation irrevocably calls for early financial planning and early retirement, the second refers to a condition where a person finds himself in a difficult situation after retirement without really having anything to back him up.
So, financial planning is necessary to avoid finding yourself in a nightmare of insecurities in your old age. On the other hand, financial planning is necessary not only to ensure a solvent and sound financial condition in the post-retirement years of life but also to fulfill the dream of early retirement.
How financial planning ensure a life free of worries, insecurity and instability? First of all, you need to start planning early in your life when you are still young. Let us offer here a few tips for financial planning at a young age to make your post-retirement days brighter.
- Begin Retirement As Early As Your 1st Job
Earlier you begin saving and investing, the bigger the sum you can ensure at the time of your retirement. Moreover, starting early with various investment options is double beneficial since you can easily gain expertise by having better exposure. If you are an employee, make bigger contributions to your provident fund and if you are self employed make a voluntary contribution on a regular basis on any systematic investment option including PPF, SIP, etc.
- Consider Value In Every Financial Decision
Young people are less considerate about the value of money and naturally they end up spending a lot on clothes, gadgets, lifestyle and vacations. Well, enjoying life is fine as long as you can ensure the same for your later years. When you think of your later years in the post-retirement period, the grim future of uncertainty will push you to consider the value of money in a new light. Instead of spending lavishly, hold on to some principles and make better judgment and better bargain.
Read here: 9 Steps To Ensure Better Returns And Improve Your Financial Status
- Maintain A Distance From Credit Card
Young people are highest spenders on credit cards. To make their lifestyle dream come true and to grab the things they always wanted they do not mind spending on their credit cards and taking the burden of credits on their shoulders. This ultimately results in a debt ridden scenario far from financial solvency. This actually takes one towards the opposite direction of financial freedom. If you want to start planning your financial condition with a positive note, just use credit cards only sparingly and only in unavoidable necessities.
- A Liquid Reserve To Meet Contingency
This is probably the most important step for financial planning. You cannot meet the contingent situations if you do not have a prior planning. In case of abject needs from where you can quickly fetch funds? Do you have a reserve of liquid asset to meet such contingency? If not, it is time to prepare for one. It is said by experts that one must have a liquid corpus of at least 6 times of the average monthly income.
- Insure Your Family
What our happiness amounts to if we cannot just ensure the same for our family? This is particularly true in case of any sudden mishappening or accidental situations. In case the earning member of the family dies or becomes disabled all of a sudden just due to any accident or illness, the dependent family should have the decent financial arrangement to look after their expenses and lifestyle. Unquestionably, there is not a better tool than insurance for this arrangement. This is why insurance is one of the most crucial parts of financial planning.
- Take Calculated Risk
When you are young, you have long years to achieve growth overcoming the ups and downs in volatile market based investments like equity, mutual funds, etc. This offers you a great opportunity to make your money grow and achieve large sum over a longer period. So, when you diversify your investment you should have a considerable portion invested in market based instruments like equity and mutual funds.
- Choose Financial Planning Instruments That Suit You
Finally, every person has his own financial objectives, types of financial constraints and ambitions. Naturally, choosing your financial planning instruments will also vary accordingly. You need to choose a financial plan that suits you best. It also depends on various factors like your age, professional exposure, job security, volatility of income, financial responsibilities and burden, available provisions for making savings for retirement with contributions from employers, etc.
Are you still in your late twenties and earning a decent salary with no such financial responsibility on your shoulder? Well, you can literally go all out with a robust growth driven plan. Are you in your late thirties or early forties with a good income and a family to look after? Well, you need to take cautious steps in regard to risks and can diversify your investment in several instruments to achieve the right balance of growth and security..
A financial planning platform where you can plan all your goals, cash flows, expenses management, etc., which provides you advisory on the go. Unbiased and with uttermost data security, create your Financial Planning without any cost on: http://bit.ly/Robo-Fintoo
To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP‘
Disclaimer: The views shared in blogs are based on personal opinion and does not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Making an investment using the app is the sole decision of the investor and the company or any of its communication cannot be held responsible for it.
7 Signs That Signifies You Need A Financial Health Checkup
Most people are unaware of certain basic things or factors to look out for, which are basically warnings towards incoming financial peril. If ignored these may prove to be very costly, but if identified at an early stage, they may be corrected to ensure sound financial health and leads the way to efficient and effective financial planning. Let’s see the top 7 signs indicating the need for financial health checkup:
Liquidity check for emergency situations
Imagine a situation where you are suddenly face job cut or meet with an accident which will disrupt your income earning capabilities. Most of the people are experiencing the job loss or pay cut currently owing to COVID-19. You can’t predict such events or developments since they are very much unpredictable. You can check your liquidity position by calculating the liquidity ratio as below.
Cash or most liquid assets (include fixed deposits and equity or ETFs) ÷ Regular household expenses incurred or estimated per month
This ratio will give out the time period for which you have surplus funds on which you can sustain without any income during such period. This is the additional liquid funds which are actually your emergency buffer, which should ideally be not less than 3. If you have liquidity ratio of 1-1.5, then there lies times of trouble ahead.
Also, if you have equity investments done specifically for a goal like children education then do not count that amount in this calculation as you should not ideally consider this for meeting emergencies.
Loans without reciprocal asset creation
Credit card loans or EMIs for luxury (simply put unnecessary items) are just an example of unwarranted loans, which do not lead to any asset creation in the long run. So forget about that high end smartphone which will put a hole in your pocket (almost equaling a month’s grocery) and put your finances to use. You can assess your debt position with following ratio.
Total assets ÷ Total liabilities (loans)
Loans would include long term loans and short term loans like credit card loans etc. Ideally for a person in the age group of 25- 45 years, has higher ratio due to higher long term loans leading to long term asset creation. However, if you are having ratio below 1 or more than 2, then it is time to check and reorganize your borrowers position.
Check the savings ratio
Financial planning starts and ends with savings. Savings should ideally be any amount saved, invested or any surplus earned every month. Any person would be better off with higher savings ratio which can be calculated as below.
Surplus generated or disposable income ÷ Income for every month
If you are encountering ratio below 1, then this is warning sign. It indicates that you are not saving, rather you are spending more. Even ratio more than 2 also indicates that you are borrowing and saving that money (works out only if interest payable is lesser than the interest income on the investment).
Assess where you stand
If you are the person who has already a huge burden of the debt and is responsible for paying up a fixed amount as loan repayment, should assess his liquidity and solvency position. This can be calculated as below.
Monthly predetermined Long term and short term debt repayment commitments ÷ Income earned per month
You need not worry if your ratio is less than 1, rather it indicates effective debt management. However, those of you having ratio of more than 1, have to take a corrective action, as this ratio implies that you have borrowed way over the extent to which you can actually afford to pay off the liability.
Retirement planning
Those of you, who have started retirement planning, may well be ahead of all others, may be able to enjoy the power of compounding. This will not only enhance the retirement corpus for you, but will also ensure that you will achieve it within your time frame, even where your cost of investment is much lower due to early entry as compared to others.
Amount contributed towards retirement planning ÷ Total income earned
Ratio of 5-7% indicates that you are contributing to satisfy threshold for tax saving instruments only, while ratio of more than 10% indicates that you are aiming at building up the retirement corpus for early retirement. However, any ratio below 5% would need reconsideration of financial planning, which would maximize the retirement contribution to optimal levels.
Read here: Impact of COVID-19 on your Retirement Planning
Impulse purchases or exceptional spending behavior
Why is that, every time you go to a mall, you need to buy a dress which will make you regret you afterwards (in terms of cost of course!)? Why is that you can’t resist ordering pizza often which is almost equal to two weeks of grocery payment? These are sheer impulse or unnecessary items, which you buy out of sheer laziness or in the heat of the moment.
Impulse / exceptional purchases ÷ Income earned per month
If you are below 5%, then no reason to worry, because your finances can still handle it (but you will need to prevent such impulse shopping). However, those of you landing in double digit ratio, are in deep trouble. This indicates that impulse purchases have rather become your habit and you are giving in to the temptations, which will land you in a situation, where you won’t have enough to pay for the things you need, because you have already spent on things you don’t need.
What is your worth?
Well not you, but your financial assets and investments! Ideally, positive ratio would bring out the extra-ordinary situation, which proves that your net worth is increasing and you will be achieving your financial goals well before the time frame.
Net worth ÷ Total assets
Where net worth = total assets (includes short term and long term assets) – total liabilities (both short term and long term). So, this net worth may keep on changing every month, depending upon the commitments. However, if you find out that this ratio is consistently negative for more than 1-2 months, then it’s a warning bell which will suggest that, you have borrowed way more than you can afford to pay off later.
Financial planning is a discretionary and yet quite typical procedure, which is ongoing and needs to consider holistic approach. Above seven indicators will give you outline that it is not just about the saving or about investment. However, you need to evaluate, analyze and put up any corrective and preventive measures, for any aspect of the financial planning.
A financial planning platform where you can plan all your goals, cash flows, expenses management, etc., which provides you advisory on the go. Unbiased and with uttermost data security, create your Financial Planning without any cost on: http://bit.ly/Robo-Fintoo
To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP‘
Disclaimer: The views shared in blogs are based on personal opinion and does not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Making an investment using the app is the sole decision of the investor and the company or any of its communication cannot be held responsible for it.
Should You Invest Directly In Equity Or Via Mutual Funds?
Investment done at any age is a good way to get a large amount of corpus on maturity. While doing investments, many people get confused whether to invest in equity, mutual funds, SIP or through other Investment instruments available. It has always been a tricky question whether you should invest directly in Equity or via Mutual funds. These decisions often make it difficult for people to decide how to invest. In order to avoid any confusion, regarding this, let us help you explain in detail about investments done through equity or mutual funds.
Investment done through any of the forms are done with the sole motive to earn profits at the end of the day. But there are two ways of investing. Either you can do it directly through equity i.e. buying and selling stocks yourself, which does require some form of dedication and willingness to understand the market. The other method is by investing through mutual funds backed by equity. In both the cases, sufficient knowledge of the market, proper market analysis and implementation and execution at the right time is required.
Best Points For Comparison Of Investing
Below mentioned are few points which will help you understand better about where investment can give higher returns and which one to select:
Volatility : – Volatility is higher in stocks in comparison to mutual funds. When comparing stocks and mutual funds for the past 6 months or one year, it is seen that stocks show significant levels of volatility compared to mutual funds. The volatility in the valuation of stock prices can easily be triggered by an announcement, performance or an event, whereas same is not the case with mutual funds as it is diversified.
Research and time :- One should consider investing in direct equities if you have the adequate time to invest in research and monitor the timely activity going on in the market. Along with that, one also has to invest considerable time in keeping abreast of the economic developments going on to understand the equity price fluctuations. However, if you do not have a lot of time to keep pace with market changes, latest trends etc, you can make investments in mutual funds. Investing in a SIP through mutual fund is the best way to invest.
Long term investment : – If you are looking for a long term investment, in that case, mutual funds can be a better option as they accumulate higher returns over the years with less risk factor associated with them. Many types of mutual fund options are available for long term investment. Direct equity trading i.e. buying or selling stocks on your own is considered as a short term profit.
Short term gains : – Direct equity is the best form of short-term gains if you have a clear idea of the market and your perspective is clear as in when to buy or sell the stocks. If you think you are able to generate the fair amount of income from these sources, the sale and purchase of stocks on a daily basis can be a good idea. However, it is quite important to understand that the person who is trading in stocks directly needs to have a clarity of the market and have its complete knowledge.
An amount required for investing: – Depending upon the amount of investment, there is a huge difference between direct equity and mutual funds. When you can simply start a mutual fund with as low as INR 500 – 1000, trading in stocks requires a considerable amount of money, to begin with.
Which Is Beneficial: Direct Equity Or Mutual Funds
With a lot many factors discussed above, we come to the understanding that there are different benefits in both the cases. However, if you want to go for long term gains with small amounts of investment, mutual funds are the option and if you have a large sum to take a risk and are looking forward to short term gains, you can select direct equity.
Mutual funds Is a better choice
If you wish to enjoy a long-term return on your money, the mutual fund will be the better option. Also with research and surveys conducted by many financial companies, it has been seen that mutual funds performance has outweighed that of equities.
Seeking Help Of A Financial Advisor
You can always take the help of a financial advisor if you are not aware of the market trends or how to acquire the best knowledge. A financial advisor can also advise you to diversifying your portfolio or explain the best option out of the two i.e. Mutual funds or Equity. Download Fintoo app to Invest online.
Why is risk profiling important in financial planning?
In the recent market situation when the Sensex was down by approximately 30-35% in a month’s time during the Feb –March 2020, many of us felt uncomfortable looking at the negative returns. The Sensex fell from around 40,000 marks to a steep low level of around 26000. Now the market has already recovered partially and is at a level of 33,000. But this entire situation of volatility in the equity markets has given you an opportunity to think about your own risk profiling. Are you behaving in the same manner as you must have conveyed to your financial planner when he/she may have discussed your risk profile?
Try to recollect and think about it for a while.
Before digging in deep into this, let’s start from the basics.
What is risk?
When we invest in the market, there is a possibility to get returns as per our expectation or below our expectation. This means we can either gain from this investment or lose some or all of the original investment. This outcome is not guaranteed beforehand and depends on various fundamental and technical aspects. This uncertainty of not knowing the result beforehand is called Risk.
However, risk is not always bad and there is no need to avoid it completely. A basic idea in personal finance is the relationship between risk and return. The greater the amount of risk an investor is willing to take, the greater the potential return. So in order to grow your wealth, some risk needs to be taken.
For e.g. The safest investment considered is government bonds when compared to riskier assets such as equity. Simple Funda – Low risk – Low return, High Risk – High return
Now let us discuss it in more detail:-
There are typically three types of risk profile on a broader level. These are:
- Aggressive
- Moderate
- Conservative
Before advising anything to you on your financial investment decisions, an informed financial planner will always first try to understand your risk profile. The planner would want to know what is your risk profile out of the above three to provide you with suitable recommendations.
Read more: Are You Getting Good Investment Advice? Here’s How to Find Out! – Fintoo Blog
How is your risk profile ascertained?
Like I mentioned before, your financial planner must have discussed your risk profile before making any recommendations. This is usually done based on the following parameters: –
1. Age Factor – If a person is very young, he can take more risk compared to a person near his retirement. Therefore, we can say that your risk-taking capacity reduces as you age.
2. Income Level – People with high incomes can afford to take more risk compared to low-income groups.
3. No. of dependants – If you have more number of dependents, then you should ideally be not making riskier investments.
4. Nature of Past investments – This helps to understand the mentality of a person in dealing with risk. If a person has invested a major part of his portfolio in equities, it gives an idea that this person is aggressive. On the other hand, if a person has only invested into fixed deposits and traditional life insurance policies, then we can clearly say that the person is conservative.
5. Some behavioural questions – Most of the financial advisors provide you with a well-thought questionnaire to check how you will react in some of the different market situations. This gives your financial advisor an idea about your relationship with risk.
Based on the above your risk profile is ascertained. If in 5th point you would have mentioned that you will not sell your investments even if you see a loss or negative returns but you have done it now in the current market situation. It means you need to redo this activity of finding out your true risk profile.
Risk profiling is a process that professional financial planners use to determine the optimum level of investment risk for investors. Risk profiling helps to identify a client’s level of required risk; their risk capacity and; their tolerance towards risk.
All these 3 concepts might look the same but they are not. Let’s see how –
Risk Required
This means the level of risk required to be taken on investments to achieve the desired level of investment return. So if you are not ready to take that much risk in that case it will be difficult to achieve your goals. This is because by taking additional risk, you open the chances of getting higher returns in the long run.
Risk Capacity
This refers to the level of investment risk or losses that a client could afford to take to achieve their goals. This is usually ascertained by their age, income or tenure of the goal.
Risk Tolerance
This is the level of risk a client is comfortable taking to achieve their goals. . It is a psychological measure. It refers to how emotionally comfortable a person is with taking risks.
There is often a mismatch between risk required, capacity and tolerance. It is therefore important to understand the thin line between all three.
Conclusion
An individual’s risk profile will affect the overall decision-making strategy and process. A risk profile is important for determining proper asset allocation in regards to an investment portfolio. By assessing how comfortable you are with investment ups and downs, you can make sure you don’t panic later when a risk is realised. It is therefore very crucial to invest as per your risk profile.
To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP
Financial Planning amid COVID-19
The drastic changes that we have seen in the world economy due to the global spread of COVID-19 need no introduction. You would have already witnessed the volatility of the market. As we all have seen in news reports, around 25% of the workforce have lost their jobs and many others have witnessed pay cuts. Country Lockdown has caused some small businesses to shut down permanently and others have witnessed a fall in business. All this has led you to have an in-depth look at your own investment portfolio.
As coronavirus continues to spread and there is no vaccine that is being invented yet to cure this disease, it is crucial that we take steps to keep our personal finances in place. You might be having a question as to how we need to do it? In this blog, we will discuss all those important steps that you need to take, to make sure you are securing yourself for the coming months and also for the years to come.
Let us discuss these steps in detail.
1. Manage your cash flow – First and most important step is to revisit your cash flow. When I say cash flow, I mean income and expenses. You need to review your current income and also estimate your future income for at least 2 years. Put some thought on how the lockdown has impacted your current income and when this effect will last.
It is suggested that you try to explore more sources of income. For example, if you are good at maths, you can start teaching maths to students. Explore your talents and start monetizing them. It is always good to have more sources of income rather than depending on just one. Apart from income, put some serious efforts into reducing your expenses, if possible to the extent of a pay cut, if any.
2. Create an Emergency Fund – Next step would be to create an emergency fund. It is important to be prepared for any uncertainty which may come. If you had an emergency fund and you used it already during current lockdown owing to pay cut or job loss then refill it at the earliest.
The amount in the Emergency fund should be equal to 6 to 12 months looking at current uncertain times. This fund can be created by utilizing the money from non-performing funds. Also, you can utilize your vacation fund for this purpose.
3. Protect yourself and family from this novel Coronavirus – Another important aspect of financial planning is having adequate health insurance policy. If you already have one, check if that amount is adequate if anyone or all the family members become COVID-19 positive. While selecting a health insurance plan, it is important to check inclusions and exclusions in the policy.
4. Protect your family’s expenses from future uncertainties – Not only health Insurance but also you should have an ideal life insurance cover. This is because your family’s goal like children’s education should not be affected in your absence. There are multiple types of life insurance policies, you should choose the one that suits your needs the best. If you have a limited budget, then term insurance would be the best bet.
Also read: Importance of Insurance amid COVID-19
5. Debt Management – If you have too many loans and most of your income is going towards your EMIs, then now is the time to streamline your debt. Do not take any more loans until and unless it is the only option left. Start creating a plan to pay off your high interest loans.
6. Short term Goals – After doing all of the above, you should be focussing on short term goals first which are critical. For e.g, if your child’s education is 2-3 years down the line then you should be focussing on how to create that fund or refill that fund before jumping in for long term goals. It is highly recommended that you review all of your short term investments.
7. Delay Discretionary goals– It is suggested that you keep all your discretionary goals at hold for some time till this COVID-19 situation eases out. Postpone your goals like buying a second home, vacations, buying a Car etc. Instead, if you have already invested some amount towards these goals, you can utilise this corpus either towards emergency corpus or short term goals.
8. Long term Goals – Long term goals will be the last to review. You should also know that the investment you made for these goals is long term in nature so no need to worry about short term volatility. You can get help from a financial advisor to get your portfolio reviewed.
9. Organise your finances – Last but not least, you should organize your paperwork. You may update nominee details in banks, insurance plans, Mutual fund investments, etc. If you have not linked your aadhaar with PAN, you may do it now. It is further suggested to switch to digital platforms wherever possible so that your time is saved.
Conclusion
So these were some of the pointers that you should keep in mind while doing your Financial Planning amid this pandemic. If you are one of those who make active decisions to review their investments, there’s something you definitely need to double-check based on the above points. You can always consult a financial planner to make this process easier for you.
A financial planning platform where you can plan all your goals, cash flows, expenses management, etc., which provides you advisory on the go. Unbiased and with uttermost data security, create your Financial Planning without any cost on: http://bit.ly/Robo-Fintoo
To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP‘
Disclaimer: The views shared in blogs are based on personal opinion and does not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Making an investment using the app is the sole decision of the investor and the company or any of its communication cannot be held responsible for it.
5 Mistakes People Should Avoid While Taking A Life Insurance Policy!
The term ‘Life Insurance’ is easy to understand, though it features may be complicated. It all depends on the needs of a person. If a person knows what they’re looking for in an insurance policy, it becomes easy for them to search for one. Insurance is important for everyone because it covers the possibility of a risk occurring.
The reason as to why people end up buying the wrong policy is because they don’t buy it according to their needs. People make their decisions based on other people’s experience. Everybody’s needs are different, so based on that, policies from different life insurance companies should be compared.
The outbreak of the COVID-19 pandemic might have made you realise the importance of having life Insurance but do not make these mistakes while Deciding on an Insurance Policy. Let us discuss these mistakes in detail.
Insurance Is An investment
One of the biggest mistakes, thinking insurance is an investment. People need to know that insurance is to cover their risks. If you want to invest, there are many other avenues where you can invest in, they give you better returns and other benefits as well. Taking a ULIP and an endowment policy just because it has investment, will result in paying high premiums and the maturity or death benefit will not be much also. In many cases, the first question people ask when it comes to insurance is, how much return will I get? In fact the right question is supposed to be ‘How much cover am I going to get?’
No Proper Research
Before buying an insurance policy, do you compare it? Most common answer will be “No”. This is also why they end up with the wrong policy. It is always important to do research before you take a policy. Identify what your needs are and the cover you require. Then once you know your need, pick out the best insurance companies in the market. The next step is to compare the different policies and the policy which suits your needs the best, is your answer. If you do not know how to go about it or if you are not sure of whether what you’ve chosen is right, then seek advice from a financial advisor.
‘THINK’ Insurance Is A Waste Of Money
Almost everyone thinks insurance is a waste of money which is not true. Insurance is a need, especially when there is only one person working in the family. People give excuses like ‘I don’t have money’, ‘premiums are expensive’ and so on. In this case, a term insurance is the best to take, it’s the purest form of insurance and it serves one’s needs and it’s premium is cheap. It’s not a waste of money. It secures your family’s future.
Blind Faith
Some people blindly trust the insurance agents, just because their friends or relatives are agents. In the end, they are the ones suffering, because they are paying a premium for a policy that’s not even required by them. That same premium could have been invested somewhere else and they could have got a better return. It’s your hard earned money, so use it wisely. Don’t just blindly buy policies, that will be a waste of money.
Read More :- Why Do You Need Insurance Along With SIP To Create Wealth?
Influence
Before buying an insurance policy, there’s only one question you need to ask yourself, What is my need? It all comes down to this question. People easily get influenced by others and easily influence others as well. If a policy doesn’t cater to the needs of one person then it does not mean that it will not suit anybody else as well. It is better to do research on one’s own needs, rather than asking others about their policies.
So, now we know where we are going wrong and where we make the major mistakes while choosing insurance policies. If the above points are kept in mind, then the policy you choose will be for your benefit only. You may download the fintoo app to buy insurance plans suited to your needs.
6 Retirement Planning Mistakes To Avoid
Disciplined financial planning serves as the prerequisite of leading a financially secured retirement life. However, this hardly gets followed in most of the cases. Although retirement planning sounds a bit scary and confusing to most people, this anxiety can be entirely removed by avoiding the most common retirement planning mistakes committed by people. Today we are going to take a look at the biggest retirement planning blunders so that you can be well-braced while deciding on your retirement plan.
- Starting Late
Instances are not rare when people start planning for their retirement after reaching their 40s. However, at such a stage they also have other things to take care of like children, elderly parents, paying for a home loan and even maintaining a certain standard of living. Staring early in the track of retirement planning can provide you with more time to ensure the proper growth of your investments which in turn leads to greater corpus accumulation.
A 35-year-old planning to accumulate a retirement corpus of 1.5 crore INR needs to opt for a monthly SIP of 8000 INR at 12% annual returns. Whereas a 25-year-old would just need to invest 2300 INR in monthly SIP for attaining the same corpus. Thus, you can very well understand that starting early is not just a choice, it’s an absolute must.
- Inadequate Health Coverage
Growing age is synonymous with increasing medical expenses making it vital to opt for an adequate health cover which can cater to the sudden requirements you might face during the golden years of your life. Failure in procuring an optimum health cover meant for your post retirement phase can cause you to lose a major chunk of the retirement corpus in treating unforeseen medical expenses.
In many cases, employers provide group health policies but they remain active only till the time of employment. This is why it becomes imperative to opt for an adequate health insurance plan early and keep on renewing the same with timely payment of premium. Insurance companies usually extend their coverage up to 65-70 years in many cases and advise thorough medical check-ups once you cross over the age barrier of 55. It becomes imperative to opt for health coverage prior to the same and keep on increasing it on a yearly basis for catering to all medical costs.
- Overlooking Inflation Metrics
We often make the mistake of calculating our retirement corpus based on our current income and price level. Our income keeps on increasing till the date of retirement to keep in sync with the growing cost of living. However, the amount retirement corpus remains fixed based on certain decisions we take during the early stages of our life.
Inflation has a tendency of decreasing the purchasing power of money over time and hence it is necessary to consider the same while getting the retirement planning done. You can consider the expected and current inflation rate at the time of calculating your retirement corpus. Various online retirement calculators are available to assist you with the same on a monthly basis so that your accumulated corpus can easily sustain the wrath of inflation.
- Buying More Policies Than Actual Requirement
Several people end up buying around 14 to 15 insurance policies to safeguard them during retirement. But in reality, being a policy collector will not make things easier in your golden age. As an alternative, you need to learn in detail about the concept of life insurance and get a term life cover. This cover can be enough for taking care of the financial expenses of your dependants unless someone else in the family starts earning.
- Sporadic Reviewing Of Retirement Plan
A retirement plan might not be of much help if it is not reviewed and implemented properly. It is definitely not a one time activity given the long time span of the goal. In reality, changing times require changes in the plan and hence sticking to one single plan can result in faltered output. All major life events be it marriage, childbirth, taking a home loan or sending children abroad for education significantly affects your savings pattern making it mandatory to alter the investment strategy.
- Inappropriate Asset Distribution
Asset allocation has an extremely important role in deciding on the type of investment which can serve you in post-retirement stage. Asset distribution usually concerns the allocation of funds amongst different investment tools like bonds, stocks, real estate etc. Your individual needs and financial standing can significantly affect your asset allocation. Various factors like changing lifestyle, decreasing income and risk taking ability also alter significantly with increasing age.
Younger people having high risk bearing capability are usually advised to opt for equity investments as they can provide higher returns and are perfect for the long-term horizon. Your asset allocation needs to be periodically revisited for ensuring that it is appropriately aligned with your end goals. Acting otherwise might leave you with insufficient corpus which might not be able to beat the rising inflation metrics.
Read More :- Impact of COVID-19 on your Retirement Planning
Conclusion
The spread of financial literacy amongst Indian people have made them conscious about the requirement of retirement planning from an early age. Maybe this is why it is not rare to come across job fresher’s belonging to the 20 something age category seeking the assistance of financial experts in planning the golden days of their life.
With more and more youngsters opting to work under the private sector, a proper retirement planning is slowly turning into the need of the hour. Job insecurity and lack of government pension can be sighted as the biggest causes of the same. But if you are aware of the mistakes lined out above, then you can definitely attain your retirement goals in due course and with minimal obstacles.Download Minty app App store & Play store and chat with experts and know the best retirement planning strategies.
A financial planning platform where you can plan all your goals, cash flows, expenses management, etc., which provides you advisory on the go. Unbiased and with uttermost data security, create your Financial Planning without any cost on: http://bit.ly/Robo-Fintoo
To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP‘
Disclaimer: The views shared in blogs are based on personal opinion and does not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Making an investment using the app is the sole decision of the investor and the company or any of its communication cannot be held responsible for it.
9 Steps To Ensure Better Returns And Improve Your Financial Status
Managing finances in a proper manner is a must and you need to make a proper plan and budget to ensure that your investments give good returns after a while. With diversification, investors can enjoy good returns along with reducing the risk of losses.
So, what are those crucial things that you need to keep in mind to get better returns and have financial stability?
9 Steps To Boost Your Financial Status
1. Start Saving
The golden rule of getting good returns or improving your finance status is by saving. You can save a fixed amount every month, either through different schemes started by the government of India or your personal savings. Whatever be the mode, a fixed amount of regular saving goes a long way in accumulating a large amount every month.
2. Whatever You Save, Invest!
Investments are a great way to ensure that you get good returns after a specific time period. You can go for both short term as well as long term investments which can help you achieve financial stability. You can easily make investment in the form of stocks, equity shares, mutual funds, SIP etc. SIPs give good returns over a period of time. For ELSS, investments are locked in for a three period, however for other investments, there are different options.
3. Review Your Finances
Reviewing your Finances on a regular basis is very important. Whatever savings you have planned for every month or small investment you have decided for a monthly basis, you need to review them semi – annually and ensure that you are not missing out on anything. A regular review will help you rectify mistakes, if any.
4. Insurance Products & Tax Benefits
Each year when you pay a large amount of taxes to the government, you try to figure out methods that can help you save on these taxes.
A great way to do so is through the purchase of life insurance, medical policy, travel insurance, which help provide a significant amount of tax benefit and adequate cover at the same time.
5. Stock Market Investment
A great way to make some bucks rather than just keeping the money in your savings account. Stock markets are a good way to get returns on your investment, if you’re a risk taking person. However, you need to do proper research and must have a thorough understanding of the stock market, before you take in the plunge. A good research will help you know in detail about when and which company stocks to buy and when to sell off, giving you good returns. Also when considering investment from the point of stock markets, you need to understand that there is some level of risk associated with these.
6. Retirement Planning
It is never too early to start. Retirement plans are a great way to invest some amount of money every month for your retired life. You can decide, as in 10% or 20% amount of your salary should be fixed and kept for pension. You can also opt for different kinds of pension related schemes started by the government through banks, post offices, etc.
7. Preparing A Budget
Making a budget in accordance with your monthly expenditure and savings is a very important aspect. Preparing a budget will help save unnecessary expenditure and help you save for more important things like children education, retirement, etc. Depending upon your monthly salary, you can prepare your monthly budget and make a point to adhere to it very strictly.
8. Seek Professional Help From A Financial Adviser
A financial adviser will be able to provide a clear picture of how savings can be done, which investment options suit your needs the best. Prioritising goals is an important task performed by the financial advisor with your inputs.
Read More :- 5 Essentials of a Financial Status Check List
9. Taking Calculated Risks
Some investments require risk taking appetite, such as stock markets, mutual funds, etc. However other investments such as fixed deposit, recurring deposits are safe from market volatility. You need to assess your risk taking ability and plan your investments accordingly. In case of any confusion, consulting a financial adviser is perhaps the best decision.
The above mentioned points can help you attain returns on the investments made by you and thus increase and improve your financial status in the longer run. Remember, discipline is the key to a good financial status.
A financial planning platform where you can plan all your goals, cash flows, expenses management, etc., which provides you advisory on the go. Unbiased and with uttermost data security, create your Financial Planning without any cost on: http://bit.ly/Robo-Fintoo
To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP‘
Disclaimer: The views shared in blogs are based on personal opinion and does not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Making an investment using the app is the sole decision of the investor and the company or any of its communication cannot be held responsible for it.
How To Improve Your Savings According to Financial Planners
Savings and investment can be boosted up easily either by increasing your income or cutting down on expenses. Whether you are on the brim of retirement or a fresher who has just started with his work tenure with a big MNC, savings remains to be the ultimate goal during all stages of our life. Contrary to popular belief, even 100 INR saved today can go a long way in adding to your corpus if invested properly. Today, we are going to take you through some expert recommended tips for hiking up your savings, boosting up income, reducing debt and investing wisely.
Repay Yourself
Savings refer to that part of our monthly income which is left after paying back all expenses. But this needs to be computed the other way around. You should first keep a portion of your income aside before deciding on the things to do with the rest. For example, if you are earning Rs.40,000 then first keep aside around Rs.10,000 for investments and then manage your expenses in balance 30,000. This way you will be more disciplined towards savings. For achieving this, you can opt for automatic transfers to an investment or savings account directly.
Creating A Buffer For Rainy Days
The first priority of all individuals should be to create a fund for rainy days. This serves as the basis of creating a sound financial plan. Once you have accumulated enough to mitigate about three to six months of expenses, you can shift your focus to future savings and debt reduction.
But for benefitting the most out of the same, you need to decide on the type of expenses which can be classified as emergencies. For starters, job loss or a major illness can be considered as a true emergency. Infrequent expenses such as purchasing a new car cannot be classified under the head of an emergency although you also need to save for the same.
Save More By Spending Less
You can trim down your expenses in a variety of ways be it by cutting down on the consumption of the daily premium coffee or multiple online channel subscriptions. But while cutting back on the spending, you need to ensure that it doesn’t get spent on any other unimportant avenue. If you are not sure about investing the money, then you can make a pending payment or simply transfer the fund to your savings account.
Bid Adieu To Expensive Habits
If your day just doesn’t start without a Frappuccino from Starbucks and maybe a costly dine-out at posh restaurants on weekends, then it’s time to cut down on the same. Apart from the obvious health benefits of starting your day with a home-made black coffee and ending it by munching on house cooked food, these small steps taken can inflict great differences in your ultimate savings figure at the end of the fiscal. Once you direct this money towards other sources having higher potential, such as paying off bank debt, you can free up your money faster. This in turn can be redirected towards further investment. You can make a list of all the debts which need to be paid back and start with the ones having the smallest balances or the highest interest rates.
Unleash Your Creative Potential To Increase Earnings
You can increase your regular income by either selling off redundant things or maybe getting a part-time job for utilising the time you otherwise spend lazing around during lockdown. Taking up full time work can seem burdensome especially when you are working round the clock for the weekdays. It is thus advisable to take up short term projects which can align you towards a specific savings goal. You can also generate extra cash for savings by selling off artifacts and belongings you no longer require such as collectables, designer clothing, jewellery, musical instruments etc.
Proper Asset Allocation
While some investments rank high in the department of volatility, others are comparatively tame on the risk-reward scale. Younger people are advised to proceed with aggressive investment options whereas older people approaching their retirement age should stick to the conservative avenues. A direct correlation exists between risk and return. Thus, if a particular investment house is promising you sky-high returns with equity linked funds, then you should also be adequately prepared to suffice the bloodshed if the market crashes.
Baby Steps Towards Savings
If savings seems like a difficult challenge for you, then you should start off with smaller targets of maybe 100 or 500 INR daily. Once you have saved adequately and spent it for realising a particular aim, you can continue with further savings so that you can slowly meet all your debts. If you feel that your savings are not sufficient for meeting long-term investment and major purchases, then your standard of living is definitely higher than what it ought to be. Such a scenario makes it necessary to make major adjustments such as shifting to more affordable housing or even trading your new car for cheaper public transportation.
Sticking To An Investment Plan
Steady investors who wish to diversify their portfolio should actually shift their attention towards purchasing more shares whenever the stock market takes a dip. You need to review your investment strategy on timely intervals and remain unperturbed by newspaper headlines during the allocation of funds. The ultimate aim here should be to continue with the investment pattern irrespective of what the newspapers are hinting at.
Seeking Out Help
Investors often feel confused about which stocks to select and how to optimally balance their portfolio. In such a case, they can readily seek out the assistance of trained professionals. Contrary to popular misconception, financial advice is not earmarked against the wealthy strata of our society. It can benefit everyone who wishes to increase their savings and safeguard themselves from the uncertainties of the future.
Read More :- Financial Planning – A Need not a Choice
Conclusion
It is impossible to create a promising future unless you learn the means of prudent investment and judicious savings. Money has a big role to play in regulating the flow of our lives. While it serves as an essential wealth creating tool on one hand, it also acts as a transaction instrument which can satisfy our present requirements. Proper financial planning empowers individuals in meeting their ultimate goal by creating a trade-off in between current and future consumption along with other variables such as savings and investment.
Importance of Diversification
Usually, we invest in instruments that offer high returns. But as there is a well-known phrase that “Do not put all your eggs in one basket”, one should be cautious in making an investment decision. When you invest by just looking at high returns, you expose yourself to high risk as well as high return comes attached with high risk. This is where diversification of a portfolio helps.
Diversification is the key to maintain risk levels at the lowest and make a most effective investment plan. Considering the current movement of the market, a diversified portfolio will help distribute financial risks across different investment avenues and different sectors to maintain a balance.
Diversification is spreading the risk across different types of investments. This is done because the goal is to increase your probability of investment success. In other words, we can say since no one can know for certain which investment is going to win the race, so let’s bet on every investment avenue.
Now let us look at the current situation where the equity markets have fallen sharply since the month of March owing majorly to global pandemic. If someone would have invested everything into equity markets then he may be suffering huge losses in his portfolio. Therefore, it is crucial that you diversify your portfolio beforehand and be prepared for such situations in advance.
It is important to diversify your investments because markets can be volatile and unpredictable. By diversifying your portfolio, you reduce the consequences of a particular asset class not performing.
Still unclear about what is Diversification?
Let us understand from the very basic. There are different options available for you to invest. Based on how these investments react to economic conditions, these investments are grouped into a few categories called asset classes. These are
- Equity
- Debt
- Commodities like Gold
- Real Estate
- Cash or liquid assets
One should have exposure to each of these asset classes. The proportion can be based on the age and risk profile of the investor. For example, if a person’s age is 25, then he should have more exposure to equity upto around 70%, 25% in debt and 5% in Gold. On the other hand, if a person is 40 years old then the allocation should be Equity- 55%, Debt – 35%, Gold – 10%. For a person who is near to retirement at age 50 or more, allocation can be done as – Equity – 35%, Debt – 55%, Gold -10%. This is just to give you an idea, the allocation can be changed based on the risk profile of the investor and nature of his goals.
Even in the same asset class, one should diversify. For instance, if you are investing in equity, you should be diversifying across different sectors.
In other words, we can say that diversification is holding investments which will react differently in the same market conditions. For instance, when the economy is improving, stocks tend to outperform bonds. But when the opposite happens and we experience a slowdown in the economy then bonds often perform better than stocks. So by investing in both stocks and bonds, you reduce the risk of your portfolio taking a huge hit when markets are volatile.
Let us see some of the advantages of diversification:-
Reduces the impact of market volatility
Investing across different funds ensures that sector specific risks are low. For instance, if you have invested in the pharma sector as well as real estate sector, so even if the real estate sector is not performing your overall portfolio will not be impacted much as it is just one part of your portfolio. Thus, it reduces risks and generates higher returns in the long run.
Take advantage of different investments
By opting for mutual funds, investors may gain the benefit of investing in a mix of debt and equity. In the same way, by investing in fixed deposits, investors benefit from a fixed return and a low risk. Hence, diversification of the portfolio will balance the risk and return associated with different funds. Even if one fund does not perform well, the loss may be compensated by the profits made from other funds.
Read this article for other investment options – Checklist for your Investment portfolio in 2021
Provides peace of mind to investors
The most important advantage of diversification is peace of mind. As your total investment is divided amongst a number of asset classes, you will not feel stressed about the performance of the portfolio.
On the other hand, if someone would have invested everything in a Fixed Deposit in the same bank and that bank shuts down or a moratorium is imposed for a certain time, then you will not have any option to protect your wealth.
We can relate to the recent Yes bank crisis here and the plight of deposit holders for a few weeks when the bank was under moratorium. If such deposit holders also had money invested in other investments, then there would have been much less panic for immediate requirements.
Conclusion
Diversification can help you manage risk and reduce the volatility of an investment price movement. However, it is important to note that no matter how diversified your portfolio is, risk can never be eliminated completely. But yes, you can reduce it to a great extent. The key is to find a balance between risk and return. So, Diversification is important in investing because the future is uncertain and it will help you achieve all your financial goals.
A financial planning platform where you can plan all your goals, cash flows, expenses management, etc., which provides you advisory on the go. Unbiased and with uttermost data security, create your Financial Planning without any cost on: http://bit.ly/Robo-Fintoo
To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP
Disclaimer: The views shared in blogs are based on personal opinion and does not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Making an investment using the app is the sole decision of the investor and the company or any of its communication cannot be held responsible for it.