Financial Advice

Important points to consider while writing a Will

byNidhi ManchandaFebruary 12, 2021

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We always care for our loved ones and wish that nothing in the world hurts them. We can be assured that they are protected if we have Will. Will is a legal and bonafide document which comes into effect on the unfortunate event of the death of the Testator. An executor has to assign the assets and money to specific individuals who are later termed as legal heir. These legal heirs then become entitled to their share as per the designated Will.

Here are some pointers which need to be considered while writing a Will

* Appointing an executor An executor is a person who would carry out the execution of Will which will include distribution and assignment of assets as named by the testator. * Witnesses Always remember to have 2 witnesses to the Will which will authenticate the Will

* Medical certificate Doctor’s certificate assures that the testator had a sound mind while writing Will and will make it legally authentic.

* All legal details of the testator Will shall have all accurate and complete details of the testator like PAN, full name etc. * Bequeath in percentage The testator can also assign the property as bequeath to any person.

* Beneficiary and the asset assignment Always mention the beneficiary name and the asset which should go to him * Will should be signed and dated

* Avoid overwriting in Will to ensure its authenticity

2 important suggestions

1 – Get the Will registered

2 – Video record the Will

Stay tuned for our upcoming videos on Will Vs Nomination Vs Joint Holding…….

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5 Reasons Of Having Your Own Financial Advisor From An Early Age

byfintooFebruary 1, 2021

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.

Related Article : Personal Financial Planning – Why Is It mandatory For All ?

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.

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How To Secure Your Child’s Educational Goals?

byfintooJanuary 13, 2021

Having a good educational goal for the child is the dream of every parent. Parents focus and invest in their child’s educational goals so that their children join a career of repute once they grow. However, we understand that children education is also very expensive nowadays and parents have to shell out a lot of money for their primary to secondary education and for their college education as well. Further, if the child wants to enrol for a post-graduate course such as an MBA or professional course like MBBS, B.Tech, you need more than 15 – 20 Lakh rupees for the same.

There are some diverse investment options which are available for making secure investments for your child’s educational goal. There are some fixed investments such as fixed deposits which are completely secure but the return on investment is small. Other options which every month can fetch you a large amount but might be available at moderate risk.

What can you do to secure your child’s future educational goals?

There are many investments which parents can make to secure and save money for their child’s education. These investments can be done through diverse options to ensure that you get the maximum return out of your investment.

Starting a SIP: – A SIP (systematic investment plan) is by far the best thing to start saving for your child’s education. You can start a SIP with a small amount as low as INR 100. Even saving a small amount of say INR 1000 – 2000 per month through SIP can help you earn a large corpus at maturity. You can start the SIP with a bank through your direct account or hire a funds manager who can help you start the SIP.

Sukanya Samridhi Scheme:- An initiative for the girl child by the Government of India. Under this scheme, anyone who has a daughter up to the age of 10 years can open an account. An amount ranging from INR 1000 – 1.5 Lakh can be deposited each year. People can also claim tax exemption under Section 80C. Partial withdrawal can be done after the child has attained an age of 18 years.

Related Article :- Did you know you could save Tax through Sukanya Samriddhi Yojana?

Gold investment:- A gold fund or gold banks can be started with banks. You can invest by purchasing anything from 2 grams of gold to 500 grams of gold. Instead of purchasing the real gold which calls for storage issues, Sovereign gold bonds are a better option. The rate of gold funds or bonds is equivalent to that of real good. Plus investors will also get an annual interest rate of 2.5% on these gold bonds. There are many types of investments in golds, via gold bonds, gold ETFs or E-Gold. The best part of the investment in gold is that the rate is not volatile.

Unit Linked Insurance Plans:- The investment cum insurance plans make a great option for people who are looking at low-cost investment. Along with offering a risk cover, you will also get the option to invest in bonds, mutual funds or stocks. This plan helps in giving a higher level of cover for the investment as well as protection. The endowment plan gives a fixed amount to the parents on maturity. In case of death of the parent, the child will receive the amount.

Public Provident Fund (PPF):- You can also start making an investment through Public Provident Fund i.e. PPF. This has a lock-in period of fifteen years with extendable five years. If you are planning to save for your child’s education, you can start a PPF under the child’s name itself. You can get a high corpus amount which will be enough to fund your child’s education.

Recurring deposit:- You can start a recurring deposit for your child’s educational goal. A recurring deposit can be started from a minimum amount of INR 500. Depending upon your budget, you can fix a separate amount of money to start the recurring deposit for your child’s need. The approximate rate of interest on the recurring deposit is 5.5 – 6% per annum.

Fixed deposit:- You can keep a fixed amount separately i.e. INR 50000 – INR 2 Lakh for your child’s education and keep it fixed for a time period up to 15 years and use it fund your child’s college fee.

Some of these investment options can be great for one to secure a good amount of money for a child’s future educational goals. This systematic way of investments will not only help you gain large corpus on maturity but will also help you track the amount you are able to save every month. One should opt for a combination of two or more options as per their risk profile.

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7 Questions That Will Tell You If You Are Financially Ready to Make Investments

byfintooJanuary 4, 2021

You must have heard that making investments for quick or long-term returns is a good financial behavior. However, not everyone understands if they are prepared to invest or where and why they should invest. At other times you may be encouraged to invest financially into something without having complete knowledge about the investment asset, just because your peers are doing so.

Investments are a very important aspect of your financial life, and there must be no mistake made about it. In case you do your groundwork, you can invest wisely. Here are 7 questions that will let you know if you are prepared to make investments or not.

Related Article :- 5 Financial Planning Mistakes To Avoid While Investing

What is Your Net Worth?

Net worth is the total value of assets, monetary savings, and valuables etc such as car, home, gold, and balances in bank accounts, investments made- minus the total of all debts you have, like credit cards, student loans, mortgage and so forth. Thus, if you are only concerned with your account balance, it is not enough to consider for investments.

You must have a long-term perspective as to how you can grow your net worth, which can in turn add value to your finances.

Did You Pay Off High-interest Debit and Credit Card Bills?

Debts, especially those with higher interest rates drain your finances. Personal loans and credit card loans are the most expensive. If you have a bad credit score, the loans will carry a greater interest rate. Thus, a major chunk of your finances will be directed towards completing the payments, which you must do as soon as possible.

You can then start investing than being indebted for an extended period. Paying off debts automatically increases your net worth.

What Are Your Worst Personal Spending Habits?

Your income minus the spending leaves an amount, which is the money you can use for investments. The lesser is the spending, more are the monetary resources left to turn into investments. While you cannot curtail essential expenditures, such as paying your child’s fees, paying off loans, electricity bill etc, you can certainly avoid splurging in areas, which you can stay off from spending- such as buying that extra coffee or extravagant meal, or getting n-number of gifts for others, and leaving out almost nothing or a meagre amount for investment.

Do You Understand Your Investment Options Well?

Before considering different investment options to put your money in, you should understand these choices well. Do you have knowledge about bonds, precious metals, real estate, stocks, ETFs, index funds, mutual funds and similar investments?

If these are few things you are unsure about, then it is recommended to approach a financial planner who can help you know the investment options and draw a realistic roadmap as to how much you should invest and where.

What Are Your Big Life Goals?

When anyone asks you about your big life goals, you may have a long list. However, you need to set these goals on priority and start working towards it early as soon as you start drawing an income. Most of us have goals like- completing education, setting a great career, owning a house, car, getting married, and have plenty of funds for retirement.

All these goals require monetary support. By chalking out goals on priority, you can systematically plan spending, investments and savings.

Do You Have a Cash Emergency Fund?

As the saying goes, “Life if not a bed of roses”, we cannot be sure that sudden disruptions will not come in life. You may have great investment plans, but what if you get laid off from the job or a natural disaster damages your house? In these situations, many turn taking credit card loans or bank loans, which should be the last resort.

A better way to handle financial disruptions is to create a cash emergency fund for at least 6 to 8 months of your expenses so that, you have sufficient monetary fund to last until recovering from the economic shock than getting into debt and liquidating your investments.

Do You Include Your Spouse in Your Financial Plans?

If you are married, then any investment plan made must be discussed in full with your spouse. What is your goal? Why do you need an investment plan? How exactly will investments be made? Where are the accounts and on whose name are these? Is this something you both agree on?

Does the benefit at the end hold value for both? Does the investment create hurdles for any of you? These are some questions to answer before making investments after your marriage.

Final Thoughts

It is surprising that many of us dive into investing without having a list of priorities or a proper financial plan. While we cannot dictate life by specific rules, it is better to be ready for investments in an articulated manner, and you can do so by following the above-mentioned steps.

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Government issues guidelines for interest waiver on loan

byNidhi ManchandaOctober 28, 2020

The Government of India recently announced the interest waiver on loans upto 2 crores. This was done to provide relief to the borrowers who have the liability to repay loans amid COVID-19. Global Pandemic had resulted in nationwide lockdown and thus we experienced disruption in businesses. This further led to job loss and sizeable pay cuts to most employees. With limited cash in hand, it was difficult for most of us whether a businessman or an employee to continue paying EMIs.

To bring in some ease for the borrowers, Government had earlier introduced moratorium of EMIs on loans for a period of 6 months i.e. from March 2020 to August 2020. This gave loan borrowers an opportunity to not pay EMIs for few months in anticipation of regular cash flow in coming months.

Although it gave a relief of not paying EMI without affecting the CIBIL score. However, this move was not much of use as people opting for loan moratorium had to pay interest on that amount later on.

Related Article: RBI’s 3 month EMI Moratorium : 360 degree view

Hence, Finance ministry has now approved guidelines for a scheme for grant of exgratia payment announcing the waiver of interest during this moratorium period on your outstanding loans. The important point to note here is that the entire interest is not waived off.

A bank will charge simple interest instead of compound interest from the borrowers for the 6 month duration from March,2020 to August,2020. So people who have not opted for loan moratorium and paid the entire EMIs on time will receive a refund of difference in interest.

In other words, we can say that people will get refund of amount equal to difference between compound interest and simple interest.

The lending institutions after crediting the amount will claim the reimbursement from the central government. It is estimated that the government will have to shell out ₹6,500 crores for the implementation of this scheme.

Although it seems like a Diwali gift to many, but it is not something to celebrate. The scheme is just aimed at refunding the compound interest on loans that accumulated during the six-month moratorium period.

We will see this in detail later on in this blog.

But let us first understand who are all eligible for this waiver benefit?

Eligibility

1. This benefit is available for all borrowers who whether availed of the moratorium or not availed. Hence, it is a good news for those who paid regular EMIs and also for those who opted moratorium benefit whether fully or partially during those 6 months.

2. The maximum aggregate loan outstanding should be not more than Rs.2 Crores. The eligibility limit of Rs. 2 crores as borrowed sum has to be an aggregate loan taken from the banking system.

3. The loan should not be under NPA (Non Performing Assets) with bank as on 29th February 2020.

4. The loan should be active as on 29th February 2020.

5. Lenders may be private banks, public sector banks, co-operative banks or regional, rural banks, all India Financial Institutions, NBFCs or Housing Finance Company.

6. This benefit is also available for those who closed the loan during the moratorium period.

7. Even partly-disbursed loans will be covered under this scheme.

Types of Loan for which this benefit is available

Following are the types of loans eligible for interest waiver scheme:

•          Home loans

•          Consumer durable loans

•          Educational loans

•          Automobile loans

•          Personal loans

•          Consumption loans

•          MSME Loans

•          Credit card dues

It is important to note that loans against fixed deposits and shares etc., and loans given for investment in financial assets (shares, debentures etc.) are not eligible for coverage under the scheme.

Amount of benefit to be received

Are you wondering how much benefit you will get in this scheme?

Well, let’s dive into the calculations to understand in detail.

As per this scheme, for these 6 months starting from 1st March 2020 to 31st August 2020, the simple interest is calculated on the outstanding principal as on 29th February 2020. The difference between the compound interest and simple interest will be credited back to the borrower.

Let us understand with the help of following table where a loan amount of 1 lac is assumed and different interest rate scenario is considered.

In the above table, you can see the refund amount applicable in the last column. For example, you had a loan outstanding of Rs. 25 lacs at an interest rate of 8%, then the amount of refund you are eligible to get is Rs.1,682 (67*25).

Above data in the table is for a loan amount of Rs.1,00,000. So you can use the above table by multiplying the refund amount by your loan amount and divide by 1 lac.

We can clearly see that the benefit is just peanuts. The difference is not much as it is the interest on interest only which is to be refunded. Even if we consider the maximum 2 crores loan at 15%, the benefit will be Rs. 47,664 (238*20000000/100000).

If you have a home loan of 50 lacs at 8%, the benefit is only Rs. 3,363 (67*50)

Even though it looks like a big relief, when you do your own individual calculation, it may not be more than few thousands. Also, the tax benefit on interest on home loan or education loan will not be received on this refund amount as you have not paid it. This means your net benefit amount further reduces.

Borrowers will not have to apply to their lending institutions. The compound interest refund will be credited into their bank accounts automatically by all banks and financial institutions. You will receive this refund by 5th November 2020.

I hope you have got a better clarity and understanding of this compound interest waiver scheme.

Top 7 Financial Planning Tips Finally Revealed That You Must Know!

byNidhi ManchandaOctober 3, 2020

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.

Related Article : Financial Planning amid COVID-19

• 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!

Are you also in your 30s like Mehtas? Check out their financial situation- good and bad!

byNidhi ManchandaSeptember 23, 2020

Financial planning is so crucial and is different for every individual. It differs based on the age of a person, his risk appetite, his current investments and the most important factor – his goals.

Keeping this in mind that “No one financial plan fits all”, today in this blog we will be discussing a case study of Mehta and family (Name changed) to help you get an idea of how to plan your finances. Check this out and see if you relate to Mr. Mehta.

Case study

Mr. Mehta is 35 years young man and is married to Jyoti who is now 33. They both have a son, Ansh. He just turned 2. They are living a comfortable life in a small apartment of his own in a good locality.

Let us have a look at his financials now.

Mehta’s Personal Financials
His current annual income (net in hand) is Rs. 10.80 lakhs, which is Rs. 90,000 per month after taxes. His family household monthly expenses are nearly Rs. 70,000. He invests Rs. 15,000 per month, and saves Rs. 5,000 per month. He expects his salary to grow at 10% per year from next year onwards.

Jyoti, on the other hand is a home maker and hence is not earning any salary. However, she does baking at home and sell her cakes in the society itself. This brings in around 10,000 on a monthly basis to her.

Mehta’s have a family floater medical insurance that covers them and for this, he pays Rs. 12,000 per year. His company also provide medical insurance but he doesn’t know much about it. Apart from this, he has no other insurance. His accumulated EPF is Rs. 1,00,000 and he invests Rs. 1800 per month into his EPF, which his employer matches.

Assets and Liabilities
We will now try to have a better understanding of his assets and liabilities.
He has a PPF account where he invests Rs. 70,000 per year and wants to continue doing so. The current value in the account is Rs. 11 lakhs. Mr. Mehta has equity mutual funds worth approximately Rs. 5.50 lakhs, and direct equity of Rs. 2.50 lakhs. He has liquid funds worth Rs. 85,000. He has no gold exposure. His residential home is worth Rs. 2 crores.

Must Read: Top Secrets Of Having An Effective Financial Planning

Mehta’s Goal

1. Buying a bigger house is what Mr. Mehta looks forward to. This will cost around 3 crores. He wants to achieve it as early as possible by taking loans.
2. Mehta’s want to plan for their Son’s education. They are clueless about the cost as of now. However, they provide a rough estimate of spending 15 lakhs when he turns 18.
3. Goal of an international vacation is on their minds. But this is not immediate and also low on priority.
4. Mr. Mehta would also like to know how to plan his retirement considering he will be spending around 40,000 per month in current terms post retirement.

Good Moves of Mr. Mehta

• No liabilities
• Bought a Health Insurance Plan
• Saving and investing

Bad Moves of Mr. Mehta

• No life Insurance
• Goal Priority not set right
• Inadequate Emergency fund

Recommendations

1. First Thing first, we see here Mr. Mehta doesn’t have a designated emergency fund to fall back on in case of any emergency. Thus it is suggested that his first priority should be to create an emergency fund. Ideally, he should have atleast 6 months of his monthly expenses as a contingency fund which comes to 4,20,000 (70,000*6). He already has 85,000 in liquid fund, the balance he needs to create. He can do this by doing a monthly SIP of Rs.12000 in a combination of liquid fund and short term fund. Mr. Mehta should continue this till he achieves his target. Any windfall should also be part of this to achieve this fast.
2. Secondly, Mr. Mehta should ask the HR of his company about details of the coverage provided by employer. Having knowledge of what benefits you have is of utmost importance. Although, it is not suggested to solely depend on the health coverage provided by the employer. Mr. Mehta has done a great job in taking a separate health insurance policy to protect his family. It is further suggested to invest in a critical illness plan for him and his wife. It will cost only around 1000 on a monthly basis.
3.  Life insurance is crucial for Mr. Mehta as he has 2 dependants –his spouse and his son. It is strongly recommended that he invest in a Term plan of around 1.5 crores to adequately insure his family. The term plan is cost effective and best way to provide ideal protection for your loved ones. A term plan for his age will cost him approximately 1250/- on a monthly basis.
4. Buying a house immediately is not feasible as it will be only possible by selling his existing house and taking a huge loan of approx. 1 crore which is not feasible at the moment. His priority should be to start creating a corpus for retirement and son’s education.
5. His existing equity investments i.e. Equity Mutual fund and direct equity should be mapped to the goal of Son’s education. Additionally, an SIP of Rs.5000 in an equity mutual fund should start on an immediate basis. As this is a long term goal, starting early will reward Mr. Mehta with a power of compounding.
6. Retirement planning is an unavoidable goal. Mr. Mehta should know that he would require a corpus of around Rs. 3.5 crores at the age of 60 to maintain the same standard of living that he can maintain today in 40,000 per month. In order to achieve this, he can map his PPF & EPF investments and start an SIP of Rs. 8500 in an Equity mutual fund. As this goal is 25 years away, equity mutual fund will be the optimum investment avenue.
7. It is further suggested that once the emergency fund is in place, the same amount of 12000 should be redirected towards creating a corpus for house in a debt or balanced mutual fund depending upon review. This goal can be revisited after 1 or 2 years.
8. Mrs. Mehta can also start saving some amount from her growing baking business in Gold ETF to have some exposure to gold.

Taking all these steps will make sure that the Mehta and family is on the right track to achieve their goals. It is important to note that financial planning is not a one time activity and it needs to be reviewed annually. I hope you got some clarity as to how you can do your own financial planning. Alternatively, you can get in touch with a financial planner who will guide you in this whole process.

Top Secrets Of Having An Effective Financial Planning

byfintooSeptember 16, 2020

Effective financial planning is needed to achieve the predetermined financial goals and objectives. Even when you are carrying out your daily responsibilities and chores, you would be relaxed with respect to finance position if you have planned finance effectively.

Prepare a budget

You may be salaried or self employed or newly recruited, but there is one common thing which all of them need to take care of, i.e. “Money”. Prepare a budget by considering similar level of income and estimate the probable routine expenditure. If there is surplus after this, assign some of the balance for contingency and unforeseen emergencies. If you still have any surplus left, then don’t rejoice and spend it in a jiffy. This is the amount which you should save, as they say money saved is money earned.

A Budget helps you keep a tab on your spending and encourages saving habit, because it will take care of every paisa earned. If you are not arriving at any surplus after reducing your routine expenses, then it would suggest that you are spending unnecessary and it would create a problem in the long term.

The Budget is not a comparison tool which you can draft and copy from any other, because every person’s budget will vary according to his income, spending pattern, expectations and savings pattern. Make sure to modify the budget periodically to accommodate new expenditure like kid’s education etc.   

Stick to the budget

No matter what, you have to stick to your budget and consider it as your bible. Where you find out that your expense variance is more than 5% – 10%, then it is an alarm bell for you.  It means that you are spending more than what you actually should. This will directly impact the savings budget and will bring down the disposable income for savings or investment. It is,  as they say “ If you spend money on what you don’t need, then you won’t have money to spend on what you need.” So, ensure that you have no other go but to follow your budget.

Moreover, you should save first and then spend and not the other way round. This would require you to cut back on credit card expenses, personal loans and unnecessary spending on luxury.

A drop makes the ocean

Remember the times when you cracked open your piggy bank and bought a little something you wished for so many days. You will get even more if you save now for a better future. If you start saving early, then you will enjoy compounding effect, even if the rate of interest or growth is not  attractive. The most important factor is that certain investment options like insurance charge more as your age progresses. Start saving as soon as you start earning. It will  be better to start browsing retirement planning options which may be at affordable prices at a young age. Considering ever escalating health care costs, you may have to opt for health insurance also for you and your dependents. This would save you from pocketing out at once if any unfortunate incident takes place. Hence, keep in mind that the early bird catches the worm. There is no tomorrow for saving, so start today.

Must read: Financial Planning – Tips For Every Generation

Cash buffer for contingencies

The only thing permanent in your life is change, so be prepared for any unexpected and unforeseen change which may shake things down in your life. Unfortunate events like accident or sudden job loss may lead to a situation with no income, but there is no stop on basic utility expense like electricity, school fees, etc. Hence, you need to maintain an emergency buffer of liquid investments or cash or both, in case of such emergencies. Ideally, an amount equal to 3 months of budgeted expenses should ideally be kept as a buffer in Flexi Fixed Deposit or savings account, which allows fast withdrawals. The investment options where  there is no lock in period and unconditional withdrawals are allowed.

Tax planning

“There are only two things certain in your life, one is taxes and another death.” Well said. Humor aside, this is actually true. You can’t run away from taxes. At most what you can is doing tax planning with the help of your financial advisor. There are certain investment options which comes with dual advantage of wealth appreciation along with the tax benefit. Also, your tax advisor may suggest you to invest in instruments which have no taxability on income streams such as PPF. The Only thing to be kept in mind is that for most of the instruments, either investment is out of taxable income (no benefit of tax deductions for amount invested)  or investment income (capital gain on sale or redemption and income in the nature of interest etc.) is taxable. So look out for those pointers according to your affordability and liquidity needs.     

Portfolio Diversification

Don’t put all your eggs in one basket and yes it applies to your investment portfolio as well. You should consult with your financial advisor with respect to asset allocation needed for achieving the long term financial goals. Diversification depends on the age and needs of the individual. For e.g. if a person of 25 years is investing, then his portfolio for at least next 5 years would be 65% – 75% equity and the rest of its debt or balanced investment options. This is because his risk appetite would be more as compared to a person of 45 years (who will be looking at retirement planning and secured income flow).

CONCLUSION

Financial Planning is not an easy task to do and also very unique for every individual. Financial Planning differs according to age, gender, income range, long term financial goals, short term financial goals, tax effect, etc. So, consult your financial advisor and plan your finances in a way that best suits you.