Retirement Planning – We may have reached our goals of owning a car or enjoying foreign vacations. But when we have retired and don’t have any stable income, how are we supposed to maintain this lifestyle? Retirement Planning helps us to invest well in advance considering the amount we wish to receive in future.
Inflation is the biggest wealth killer if we don’t plan our retirement considering the Inflation impact on the same.
Related Article: Start Early To Retire Early – Retirement Planning
Also, the markets are always subject to risk. Now we do see a visible impact on the economy due to pandemic, which has resulted in job loss, lesser production and lesser disposable income.
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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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What is Risk Profiling? How to find your Own Risk Profile
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Knowing your risk profile is one of the very important step before making an investment. Risk will always be on your plate when you’re investing, but do you know How to find your own risk profile? Refer our video to learn detailed information about your Risk Profiling
Stay tuned for our upcoming video on…….
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If your family member or anyone depends on you financially, Insurance is a must have product in your portfolio. When it comes to insurance, there are various types of policies with varied benefits and features.
Which is the most beneficial policy for you?
How much insurance do you need?
These are few questions that need to be answered before buying a life insurance policy. Buying a life insurance policy is important but what is equally important is to buy adequate insurance.
In this article, we will discuss insurance need analysis by thumb rule method which is easy & quick to calculate. Important point to remember while applying thumb rules is the calculation won’t give you the exact insurance amount you should have. But it will definitely give you a fair idea to start with. Exact insurance depends on various factors like age, dependent needs, goals, liabilities etc. Although these thumb rule methods won’t give exact insurance required but with these methods we can calculate minimum insurance required and get ourselves started.
If you would want to know the exact insurance cover required for yourself, you may get in touch with a financial planner. This will help you to get the answer to this question customised to your needs.
Now let us start with these thumb rules.
1.Based on yearly income
The first thumb rule is based on your yearly income. Ideally, a person should be insured to the extent of 12-20 times of his yearly income. Lesser the age higher the multiple. Here Income refers to net income means income left in hand after reducing your taxes and personal expenses. Please note that we are talking about your personal expenses here and not the family expenses.
This is one of the easiest ways to calculate minimum insurance required. For example, a person aged 25 has yearly income of Rs.5 Lacs and spends Rs.50,000 on his personal expenses throughout the year. He then should be insured to the extent of Rs.90 Lacs (Rs.5 Lacs – 50000 =Rs. 4.50 * 20 times).
Read more:- 7 Reason Why You Should Buy Insurance
2.Based on family’s monthly expenses
The second important thumb rule takes into account your expenses. Based on expense method an individual should be insured to the extent of 80 to 120 times of his family monthly expenses. The underlying assumption here is we need to plan for adequate insurance by making provision for their regular expense if we are not there.
For instance, a person’s family monthly expenses are 50,000 then he should at least have an life insurance cover of Rs. 60,00,000. ( 50,000*120)
3.Income plus expenses method
As per this method, a person should be insured by following both methods – i.e.income method and Expense method. It is a combination of income method and expenses method. In the first part, insurance is calculated as per the income method and in the second part, the amount required to pay off all the loans and financial goals are added to the first part.
For e.g. as per first part income method insurance calculated is Rs.50 Lacs and second method other loans and goals totals to Rs. 30Lacs. In that case total insurance needed is Rs.80 Lacs.
4.Affordability of premium as % of your income
An individual has various responsibilities and priorities. Insurance premium is treated as expenses if it’s paid for pure insurance policies. An individual ideally should pay around 6% of monthly income as insurance premium for self-insurance. As more members of the family are insured he can increase this by 1% per person.
Premium paid for savings and investment plan should not be considered, only pure insurance cost is calculated as part of the limit. Many companies follow this thumb rule while buying insurance under group insurance policy for their employees. Now that you are aware of how to calculate the amount of insurance required, you are ready to take the first step. It is suggested that you use these thumb rules as a guiding principle only. They can provide a framework for you to assess your individual needs. To get a more accurate idea of the amount of insurance required, you may get in touch with a financial advisor. Don’t wait and start investing in an adequate insurance cover by downloading the fintoo app.
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 them 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, a 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 necessities and financial needs 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 your 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 asset classes while chasing high-return investments. 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.
A 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. A few of the examples of bad loans can be loans 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 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 a 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 a 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 are key ingredients to financial success. Financial Planning is nothing but goal-based planning.
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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.