confused?

Got plans for the future – but don’t know if you can afford them? Like to start saving – but you’re not sure how or when or how much?

good news
There are six simple steps that can help you sort out your finances and plan for your retirement.

take control
know yourself save little and often invest for the future protect yourself get advice

what are you waiting for? read on…
Don’t forget to check back for updates October 2007
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www.six-steps.org

it’s important that you don’t just ignore the problem: you should learn to manage your debt. talk to your financial advisor on your advisor. ‘I want to have lots of money’ – obviously we’d all like that. Put a figure and a date on it. Setting goals Goal setting is an essential part of taking control of your finances. you need to tackle those two everyday elements: spending and debt. but don’t be tempted to cut back on your long-term goal • Think about a plan to achieve your goals. But it’s really hard to know just where to start. you need to plan how to achieve them too. That’s why the first of the six steps is to take control of your finances – to sort out your current position. It’s the balance between these elements that determines just how healthy our position is. what we’re spending and how much we’re saving. And if you find that you’re regularly spending more than’s coming in. Before you can focus on saving for the future. it puts you in control of your finances – and in a position to think about how to make your money work for you. Tackling your spending You can’t have financial control without managing your cashflow – what’s going in and out of your account. work out your priorities and think about making a plan for the future. you can identify where you can make savings. More about that later. Fill in the retirement planner and find a financial adviser to talk over your options. if you are finding this overwhelming. we all need to plan for the future. Start by asking yourself some questions: how much money do you have coming in and where does it go each month? To keep track of your spending.take control Take control of your finances and plan for your future.in . what we owe. Once it’s all written down. Once you start thinking about what you want to achieve. Once you start looking at your spending like this. • Set financial goals to give you direction • Your long-term goal should be to save money for your retirement • Short-term goals are things like saving for a deposit or a holiday • Be realistic and balance your aims. 2 Produced by Aviva India www. The key things about goals is that they should be specific and achievable. The basics • Look at your spending and know where your money goes each month • Manage your debt – if you need help. to reduce our debt. Like it or not.six-steps. and it becomes something you can work towards. Once you have goals. finally. rent/mortgage) and what spending you should be prioritising (eg credit card and loan payments). Over time. to increase our savings. Balancing our finances The key things that affect our finances are what we earn. you could try noting down absolutely everything you spend in a diary for a month – you might be surprised. to control our spending and. we should be looking to earn more. you’re going to find that you have a mixture of short-term and longer-term goals. It’s not much use to say. you should have a clear overview of how much you have to spend on fixed costs (eg commuting. However. you have direction – how else are you going to know what to aim for? Of course.

you can start developing a long-term investment plan – built around a pension. Admittedly. a potential problem here is that you might have quite a few short-term goals. Credit card debt is expensive so this one should be a priority. The sooner you get down to it the better. Although goals like these are short term when compared with planning for your retirement. As you’ve probably realised. Which are necessary and which ones would just be nice to have? For instance. True or False Financial planning is nothing to be scared of. another useful. The longer you put off saving for your long-term needs. Look at the short-term ones. though unshowy.six-steps. perhaps one of your shortterm goals is to pay off your credit card debts. nothing’s set in stone. put it on the list immediately!) You should be settling your debts before you think about saving for anything else as it’s possible that you’re paying more interest on your debts than you’d be receiving on your savings.com. In fact. Short-term goals are rather easier to visualise – maybe you want to buy a new car. well. short-term goal would be to talk to a financial adviser about this. they could still take you five years or so to achieve. you’re ready to start thinking about a plan to achieve your goals. we’re all going for pretty much the same thing: enough money to have the life we want when we retire. long term.Long-term goals are hard to get to grips with because they can seem so. Once you’ve got an idea of what you’re aiming for. That’s because delay is costly.in .six-steps. The retirement planner is available on www. your home and savings – to get you there. (If you’ve got credit card debts and this isn’t one of your short-term goals. this does feel a little abstract. Once you’ve taken steps to control your debt and spending. save up for a deposit on a house. In fact. build up some savings for a rainy day or pay off a loan. and worked out what you’re aiming for. so you need to plan for them too. 3 Produced by Aviva India www. that should definitely be one of your short-term goals. True Just follow the six steps. What you need to do is to establish a long-term investment target so that you’ll have a picture of what your income will be when you retire. You’re losing money. your route to financial security in your retirement. It’s up to you to make it less so. But when it comes down to it. the more you’ll have to save. Fill it in and take it to a financial adviser. Don’t be tempted to cut back on the long-term goal of saving for your retirement. Don’t forget to review your goals – and any plan you’ve made – if your situation changes. This means you’ll have to do some thinking about your priorities. But remember.

As we can’t eliminate risk from our lives. their value can go down as well as up. Savings bank accounts If you put cash into a savings bank account. Savings bank accounts are a good option for short-term savings – for instance. Bonds aren’t risk free – as their value can fall and the company that issues them could go bust – but they do have greater growth potential than ordinary savings accounts. before you launch into any financial decisions. The rule-of-thumb with investing money is the higher the return. such as an emergency fund. risk is going to play a big part in your thinking about financial planning. the better for long-term investments as this gives you time to recover from any losses • Don’t put all your eggs in one basket – it could be dangerous to have all your long-term investments in one place.six-steps. your money will be secure – and so will any interest that you make. The basics • Think about your savings options realistically. and you might lose your money • The longer. As much as we all like to demand guarantees on everything from public safety to the bank holiday weather forecast. Bonds Bonds are like an IOU issued by the government or a company – in return for your money. Risk is simply the possibility that something negative will happen. your mony is not only secured and so also the interest you earn And the power of compound interest can be substantial. And that chance is always going to be there. 4 Produced by Aviva India www. The real issue with short-term savings is that inflation eats into their value because they offer very little growth potential. you need a better return on your money. Why does any of this matter? Well. For long-term investments. However. Step 2 helps you understand what’s at stake so you can work out how you really feel about money. the higher the risk. Here’s a quick guide to the relative riskiness of various ways of investing your money.know yourself Are you a risk taker or do you like to play it safe? Big spender or penny-pincher? Careful planner or impulse buyer? It’s all down to your financial personality. It’s also the right place for any money you need to be able to get at quickly. On the other hand.in . because prices can fall relatively quickly. similary. Property Investing in bricks and mortar – whether it’s your own home. if you’re saving up for wedding expenses or a dream holiday. It’s also a long-term investment. Your money isn’t easily accessible so bonds are a long-term investment. what’s important is that we can consider our options realistically. you need to know yourself and understand how you really feel about risk. The risk is you might not get the return you expected – or even that you end up losing money. Naturally. they’ll pay you back at a certain rate each year. look at higher-risk investments such as shares and bonds but remember. as it ties up your capital. if you save every month trough a necurring deposit account in bank. commercial property or buy-to-let – can bring great returns if the property market grows. so you should be looking elsewhere. evaluate the degree of risk involved and then decide whether it’s something we feel comfortable with. you could get a really great return for your investment. consider the risk involved and then decide what you feel comfortable with • Lower-risk products like savings bank accounts are best suited to shortterm saving • For long-term savings. most things in life involve a degree of risk. it’s also rather risky.

However. You should have the right sort of investments for the job. Of course. Start by knowing what risk you can accept. For those risky. long-term investments. But health care developments and lifestyle changes mean more of us are living longer. they’ve traditionally been the option that makes the most money for investors – by a very long way. This is because they are tied to economic performance and over long periods of time – say 10 years – this more than offsets the impact of inflation and the periodic falls in stock markets. This means many retirees are keeping more of their assets in higer-risk equities rather than bonds because they need their assets to continue to grow so that they have enough to live on for 20 or 30 years in retirement. making them risky. The balance between your investments shouldn’t be static throughout your life. there are some things that should influence your decision. It’s best to have a range of investments and spread your risk. Low-risk products are best suited to short-term savings and higher-risk ones to longterm saving. True 5 Produced by Aviva India . then shares aren’t for you. Otherwise. You need time to give yourself a chance to recover from any losses. Weighing up the risk While it’s up to you to evaluate risk and to know if it’s something you can live with. You can’t predict the fluctuations of the stock market. over the long term. then look into the risk inherent in each type of investment. always make sure you discuss how you feel about risk so the adviser can recommend products that are right for you. for over 20 years). The balance of your investments is another important thing to think about. it’s a risk well worth considering. Of course past performance isn’t a guide to the future. if you put everything you have into property you could find yourself in trouble if the housing market falls – particularly if you stretched yourself to the limit when you were investing. Don’t put all your eggs in one basket – it could be dangerous to expose yourself too much to one kind of risk. if you really can’t cope with the fact that you might lose some money at some point. There could be big long-term potential if you can handle the short-term risk. For instance. but the longer your money is invested. So. the greater the opportunity to ride them out. guard against a knee jerk response when you’re thinking about risk. If you’re in your twenties and investing in shares for the long term (say. If you talk to a financial adviser. True or False All investing is risky Most things in life are risky and that includes investing. the longer ‘long-term’ is the better. But you should also know yourself and what makes you uncomfortable.Shares The value of shares can go down as well as up. you’re giving yourself plenty of time to make up any potential losses.

And start as soon as you can. you’ll be losing money. For savings accounts.) So it makes sense to pick a highinterest savings account that will give you a good rate of return. how much you’re putting in and how often you do it. the inflation rate is higher than the rate of interest you’re getting on your account. then you probably shouldn’t think about saving until you’ve paid them off. This works out how many years it will take for your savings to double – simply divide 72 by the interest rate you’re getting.100 into an account which pays 5% interest.save little and often When it comes to short-term saving. You’re forgetting about inflation. say. So. If you’ve got debts. 6 Produced by Aviva India www. in fact. If you put aside a little bit of money each month. but its value might not be growing at the same rate. how much you put in and how often you do it • Rate of return is how much interest you’ll make – the higher the rate the better • How much you put in is up to you. if you put Rs. over time. This effect becomes more noticeable over the long term and is one of the reasons why your long-term savings tactics should be different from your short-term ones. Your money needs to be both accessible and secure. if. plus Rs. That’s because it’s likely that you’ll be paying more interest on your debt than you’ll get on your savings. then you’ll find you can actually buy less with your money. such as credit card debt. the sooner your savings will double. The interest you’ll get over a year on an account is expressed as a percentage. 5 of interest. what you’re saving for and your budget. Save little and often – that’s the secret of step 3. but do it regularly – even small amounts will build up • Saving each month gets you into the habit and you’ll benefit from compound interest too • You’ll need a low-risk account with a high rate of return that you can access when you want to without paying penalties This table shows how it works. Confused? Well. it all comes down to the interest rate. I n te r e s t r a te 6% 72÷6= 12yrs 4% 2% 72÷4= 18yrs 72÷2= 36yrs 0 10 20 Years 30 40 But is it a good idea to make a deposit and forget about it? Well. it will soon add up to something more substantial. (This is the simplified version. The basics • Short-term saving is about saving for things over the next five years • Three things will affect your savings: rate of return.six-steps. think little and often. with most savings accounts. no. 100. Financial boffins have cooked up a useful formula based around rate of return: the rule of 72. Rate of return Rate of return describes the growth you’ll get on your savings. the next five years. Short-term saving is about funding goals you hope to achieve in. You need to consider your current income and outgoings.in . you’ll be taxed on that interest. The higher the interest rate. You may be congratulating yourself for starting to save but. The amount in your account might be increasing. It’s affected by three things: rate of return. after a year you’ll have your original Rs. How much? That’s up to you.

That way money will go into your account before you have a chance to spend it – with luck you won’t even realise that it’s gone.000 30.000 20. as compound interest will make your savings grow. So. 102 in the first month. an emergency fund needs to be as secure as possible – you might need it tomorrow. It makes sense.000 50. you don’t want to have to give sixty-days notice. There are several savings opportunities.000 a year.000 10. Take a look at bank interest rates on various accounts and for various time periods. few financial institutions also regular income and fixed term savings instruments. your savings will rise to Rs. For example. but think how they could build up over time – adding to your savings. the more compound interest can work for you. Access If you’ve met your savings target. the post office savings schemes offer different types of savings accounts.000 70. And the next month. That’s Rs.04. easy access and a high rate of return. This chart shows how the compound interest effect really kicks in the longer you have to save. These gains may seem small.104. 100 into your savings bank account. it will be Rs. Low risk Low-risk savings accounts are the best place for short-term savings. You’re gaining interest on the interest. Always check the terms. and that your savings are earning 5% interest. they will quote an annual rate which will be very low compared to this example ). 2 in interest. You should do your homework by checking out interest rates and how easy it is to access your savings.000 0 10 20 Years 30 Interest earned Savings Where to save The most painless way to save is to set up a monthly direct debit from your savings bank account to your recurring diposit account. How often? To make the most of your short-term savings. Tax-free savings With most savings accounts. 1.000 Rs. If your savings account has an interest rate of 2% a month (remember. 2. it’ll put a dampener on things if you have to pay a penalty to withdraw your money.in . it’s up to you to check the terms of the account to see if you’ll be penalised for withdrawing or transferring your money. So where should we be stashing our savings? When you’re deciding on the best home for your short-term savings. Here’s how it works. there are three things to look out for: low risk. Likewise. 80. Some of them offer tax concessions. Rate of return A high rate of return is obviously a good thing for building up your savings. 7 Produced by Aviva India www. Recurring deposit Accounts don’t always make it easy for you to get at your money. There are a lot of accounts to choose from and that’s where the other factors come in. putting off saving is a big mistake.04 – more than the month before. True or False It’s good to start saving when you’re young True You’re never too young to start saving! The sooner you start the better. you’ll have to pay tax on any interest that you make. Even a small amount every month will build up over time. The interest the second month is Rs.What you should do is going to be dependent on your personal circumstances – your age and the scale and type of your debt. As always. commit to saving regularly. A m o u n t 60. It’s all to do compound interest. Say you put Rs. Besides your bank. if you desperately need to get at your emergency fund.000 40. It assumes that you’re putting in Rs. doesn’t it? Tax rules may change in the future. The earlier you start. It’s something you should discuss with a financial adviser.six-steps.

We can’t rely on the state pension – we need to be saving too. your employer may well make contributions too • Your home is an important taxefficient investment. And most of us aren’t doing anything like enough. So who’s going to pay for it? The Employee Pention Scheme (EPS) state pension won’t be up to it.six-steps. it doesn’t currently increase in line with inflation and it might not even be around in a recognisable form when you retire. And most of us aren’t doing anything like enough. We have to face it: we need to be saving too. In fact. bonds and. your home and investments such as shares and bonds • The three main types of pension are the EPS pention. The basics • The EPS pention is important but you shouldn’t rely on it for everything • You’ll need to build up long-term savings for financial security in retirement • Work out your savings target • Don’t put all your eggs in one basket – spread savings across pensions. yes. Whatever you’re thinking. It may be one of the elements that makes up retirement income but it’s not much It’s not going to buy a lot by the time you retire – it might not even be around. These investments are long term. you will almost certainly get tax relief on your contributions.six-steps. multiply whatever income you want by 20. Otherwise. However. who’s going to pay for it? Step 4 tackles the big one: saving for retirement. When you divide your assets between savings and 8 Produced by Aviva India www.in . If you just want a rough idea. Now how are you going to get there? Don’t put all your eggs in one basket Say ‘retirement planning’ and most people will immediately think of pensions.invest for the future It’s essential to invest in long-term savings. you should be looking at two main areas: investments (shares. Balancing your investments is vitally important. pensions) and property. Shares have traditionally produced better returns than any other type of investment. True or False The EPS pension won’t be enough True Too right It’s not much. print it out and take it to a financial adviser who will help you work out a more detailed target. past performance isn’t a guide to the future and they do carry the highest risk. The first thing you need to do is to work out a savings target. How do you see your retirement? Not really thought about it? An opportunity to travel a bit? More importantly. com. it’s likely that you’ll have more time to do it as we’re living longer. fill in the retirement planner on www. occupational pensions and personal pensions • If you contribute to a occupational or personal pension. But pensions aren’t the whole story. tax efficient and put your money where you can’t get your hands on it before you retire.

True or False My property can replace a pension Let’s take a look at each of the elements. including savings and pensions. you’re only making 2% interest. Employee Pension Scheme occupational and personal – as well as who pays into them. they’ve given a far better return than any other type of investment. and inflation can cut into the purchasing power of the income they provide. you’re spreading any risk and giving yourself the best possible chance of a secure retirement. you’re giving yourself time to recover from dips in the stockmarket. they’re a high risk investment. Not only are their returns low but. historically. property’s an important part of your financial planning. Bonds are a bit like IOUs – they’ll take your money and promise to pay you back. And when you retire. 9 Produced by Aviva India www.six-steps. there’s a pension to provide you with a regular income. in the long term. how the money is saved and how they provide you with money once you retire. especially if you’re only going to hang on to them for a few years. if your account pays 4% interest and inflation is at 2%. You may find that a lot of your money is tied up in a single investment. Corporate bonds are issued by companies and gilts by the government. Property Owning your own home is one of the key investments you can make.com. What everyone does agree on is that most of us aren’t putting enough into our pensions. House prices can rise dramatically. it’s best to aim for a balance of assets. However. as you don’t have to pay capital gains tax if you sell it. Every time the inflation rate goes up. a few companies have failed to pay up what they owe. For instance. It’s also worth remembering that pension contributions are tax efficient. House prices can fall too. False Your home is an important long-term savings vehicle but you’re right not to rely on it to fund your retirement. Investments We’re not talking about savings bank accounts here. What’s more. That makes your home a tax-efficient investment. They also promise to pay you a certain rate of return each year. In theory. it’s an investment you can live in too. Tax rules may change in the future. In practice. a good idea for most people. which can provide you with additional rental income but this is subject to tax. Their value can go down as well as up. Many people invest in shares – also known as equities – either through collective funds like mutual funds or directly in individual companies. Your return comes not only from any growth in value of the shares themselves but also from dividends – regular payments companies make to shareholders. Property-as-investment has its drawbacks. If you’re investing for the long term. However. You can also invest in buy-to-let property. You save throughout your working life. Bonds do involve risk. The confusion partly stems from the various types of pension around – essentially. this is pretty straightforward. Property is a relatively inflexible investment. Of course. As shares fluctuate in value. over the years. what you actually get for your money will fall. If you do go in for buy-to-let. There’s more about pensions on www. This balance shouldn’t remain the same throughout your life – check with your financial adviser. rising inflation will eat into the value of what you’ve saved. Instead. of course. look to bonds and shares. a little more complicated. Collective funds. it is. You can’t say that about a pension. you should also be investing in a pension.six-steps.in . such as mutual funds are the low risk way to invest in equities. you have to be prepared for the times when you can’t get tenants – you’ll have to be covering that mortgage yourself. And you can’t get your hands on the money until you retire. as you might expect. And. They are run by professional fund managers so you get the benefit of their expertise and spread your risk across everything they’ve chosen to hold in their fund.property.

your money and your stuff. such as jewellery. your mortgage company is going to insist on buildings insurance – protection for your home and the land it stands on against risks such as fire. Could you replace all your things if they were stolen or damaged by fire? Think about it… how much would it cost to replace all your CDs and DVDs? What about your furniture? Your sofa may be old and saggy. And we haven’t even started on the expensive one-off items yet. Yes… it’s time to talk about insurance. Even if you’ve paid off the mortgage.protect yourself Look after yourself. your landlord will most likely have this one covered. Well. Yes. your home is probably going to be your most valuable asset. Insurance can protect you when things go wrong. Insurance certainly has a boring reputation. you’d definitely appreciate that boring old insurance policy should you need to call on it. your family.in . There’s another side of protection to consider and that’s protecting what you have from the taxman. Or if you suddenly lost your income because you were ill and couldn’t work. just to make sure. If you’re renting. The basics • Always shop around for insurance • If you’re a homeowner. You should check your lease. the computer or the TV. You can read about some of the simple things you can do in the manage your tax feature. 10 Produced by Aviva India www. you are paying to be insured against specified risks for a specified time. subsidence and flood. Your possessions It’s really easy to underestimate just how much stuff we’ve got. you’ll need buildings insurance • Contents insurance protects your possessions – don’t under insure • If you have a car. To see that value destroyed is one risk you don’t want to run. but a new one would cost several thousands. and you are covered by the terms of the policy. If the worst happens during that time. the policy will pay out.six-steps. it’s common sense. This isn’t sharp practice. you have to have motor insurance • Income protection insurance or critical illness cover could help pay the bills if you’re ill and can’t work • Life insurance pays out a tax-free lump sum to your dependants when you die • If you pay into a pension you’ll almost certainly get tax relief on your contributions • Buying your own home is a taxefficient investment But what should you think about protecting with insurance? Your home If you own your own home. When you buy an insurance policy. That’s where the fifth step comes in. just think about how you’d cope should you have to replace all your stuff in one go. and you might reckon that you could easily spend the money for all those premiums on something a lot more fun. Don’t get so carried away with sorting out your future that you forget what might be just around the corner.

in . You should also check your existing policies and see if they cover you for the right things– don’t just automatically renew that contents insurance every year. how would they cope financially if you died suddenly? This all might sound rather gloomy but we do need to think about such things. Options well worth thinking about are ‘new for old’ cover and protection against accidental damage and for your belongings outside the home. As usual. If you have people financially dependent on you. Although insurance can seem like an unnecessary expense. you should speak to your financial adviser to get further information and see what’s the best option for you. insurance companies are more than happy to provide some options. Your car If you’ve got a car. Third party.All things considered. 11 Produced by Aviva India www. You won’t be covered. Again. However. And don’t underestimate another benefit: that all-important peace of mind. if anything happens to your car. Most people under insure.six-steps. but there are some restrictions on the types available. it protects the other people involved. as you might expect). it’s just a question of what kind. you should consider life insurance. some sort of motor insurance is a legal requirement. So. you should check the small print to see which illnesses are covered – not all of them will be. Yourself What’s the most important thing you need to protect? You! How would you pay the mortgage/rent if you became ill and unable to work? If you have dependants. Fortunately. in the long run it could save you money. One type of work. Fully comprehensive insurance covers you for everything and is always the best bet if you have a new car. Life insurance is sometimes available through pension schemes. contents insurance is definitely worthwhile. so think about how much it would cost to replace your stuff and make sure you’re covered for the right amount. Tax rules may change in the future. This pays out a lump sum when you die. fire and theft insurance is an obvious step up. Critical illness cover gives you a taxfree lump sum should you develop a serious illness such as cancer. Going this route means that you’ll get tax relief on your premiums (subject to certain limits. too bad. The most basic sort of motor insurance is third-party – should you have an accident. whether you’re renting or a homeowner.

• Insurance Brokers are going to give you the most choice. or if you have a lump sum to invest. it’s probably a good idea if this is the first time you’ve really taken control of your financial planning.get advice Talk to a financial adviser about your plan and how to make it happen. Go with what makes you feel comfortable. Perhaps you want to talk it over with someone. and making pension decisions is only a part of it.six-steps. The basics • Financial Planning Adviors are tied agents working for insurance companies • Brokers can recommend products from any company and must offer you the option of paying via a fee • Tied agents recommend products from a specified range • Tied agents can only recommend products from one company • Make an appointment just to talk to an adviser before you commit to anything • You can leave your contact details in this website to get personal recommendation from our advisors. • Tied agents can only recommend products from one financial services company. That’s fine too. So. Although you might find it reassuring to talk to friends and family. You can leave your contact details in this web site to get personal recommendation from our advisors. you should think about getting some advice. the financial plan’s sorted and you feel confident about putting it all into practice? Great! But maybe that’s not quite how it is. The sixth and final step brings on the financial advisers and looks at how to make the relationship work for you. • Always do your homework – you’re the one who has to make the decisions • Take your paperwork to the meeting and check your plan afterwards • Ask questions – if you don’t feel comfortable. • Tied agents can recommend products from a specified range of financial companies. You’re always going to face a lot of options when you plan for the future. You’ve got different types of adviser to choose from. they’re not really the ones you should be asking for financial advice. you can quote the six steps in your sleep. In fact. walk away. So. What you need is a financial adviser. if you’re planning longterm investments or for a major change in your life (such as retirement).in . They can recommend products from any company. 12 Produced by Aviva India www.

the more you’ll get out of talking to an adviser.The more work you’ve put into thinking about a financial plan.com comes in.six-steps. tried out some of the tools and started to fill in the retirement planer. Don’t forget to save the information in the retirement planner. then that’s a great basis for talking to an adviser. what kind of a return you’re looking for and how you feel about risk.in . And that’s where www.six-steps. If you’ve worked through the six steps. 13 Produced by Aviva India www. how much you can save or invest. and go back to update it regularly – particularly when your circumstances change. Ideally. you should have an idea of what you want to achieve. You can also do your homework by exploring some of the links in the info centre on www.six-steps.com.

six-steps.in .Notes 14 Produced by Aviva India www.