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Step by step financial planning The word financial planning has vast meaning. Different people can interpret the same in different style. Proper financial planning has a simple meaning that a person should not run out of money whenever a present or future requirement occurring to him or family. In India, especially middle class family are not well aware about the requirement of a good financial planning. This will put them in trouble with out of money in some situations once if they had enough money in their hand. Correct financial planning is not a single or simple process. Instead, it involves 3 major phases: Self Assessment, Planning and Execution. I am talking about the must required steps one has to follow to achieve great financial wisdom in his life. Part I: Self assessment: This is a preliminary step someone has to complete prior to planning his finance. Doing a self assessment make him able to understand his present wealth status and responsibilities. 1. 2. 3. 4. 5. What is your age and when you are planning to retire? What is your main source of income? Who all are your dependents in your family? What is your expenses and what is your monthly savings? What is your current investment status?

One should identify his wealth status prior to move with financial planning. Part II: Planning of finance Planning required your attention to lots of areas where possible error can happen and that can cost you. When planning the finance, one should take care of the following points in a greater extend: 1. Protection of himself and dependents from accidents and medical treatments 2. Securing family and dependents from any future consequences happening to you because of you are the breadwinner. 3. Protect your major assets 4. Protect yourself and family from mortgages and loans 5. Meet the unexpected expenses that may occur

6. Plan for your children 7. Plan for your retirement 8. Plan your investments and balancing the same as per your age, risk profile, goals 9. Financial advisory if required 10. Monitoring your wealth and investment status

Part III: Execution phase of your financial plan Execution phase after the above mentioned 2 phases required more efforts. Once after completing the same, it is a must requirement to monitor the status time to time to understand the status and act as per any action if required depends on your life changes or requirements. 1. Protecting yourself and family: A major cash losing loophole in financial planning is the medical expenses. One who has parents and young kids should enough care to provide all the forthcoming requirements of medical treatments for them. The very first part for your financial plan is protect your family and yourself through a best mediclaim policy available in the market. Once you have applied and successfully completed the part of mediclaim policy, now you are free from any expenses that can happen due to medical treatment requirement from yourself and dependents. This option will not only give you protection from medical expenses to you and family but also, provide the income tax benefit under section 80D in India. 2. Secure your family in case of any consequences happening to your life: This is the part intended to the future of the family. Suppose you are the only breadwinner in the family and something happening to you will affect the whole family at the maximum worst. You should be prepared to overcome such situations in a cost effective manner. The best solution for this is apply for a term policy instead of any traditional products or ULIP’s from LIC or any other company. The nature of a term policy is you can decide the level of protection required by yourself and pay a premium as per that. This will be very cost effective manner. Term policy or pure risk cover commonly have very less premium with huge protection. The thumb rule on the amount of protection is 7 X your annual income. In term policy, the nominee will receive all the assured amount in case of the sudden demises of the policy holder. Once you have completed the term policy year without any issues, then you will not get back the premium you paid for the policy term. Remember, when applying the term policy, apply it as early as possible. Term policy amount increase is depends on your age of entry and that amount will continue till the end of policy year. Applying as early as will give you the benefit of less premium amount throughout the policy terms. Also, remember to get the maximum policy term once you applying for a term policy. The other good point of term policy is, providing you tax exemption under Indian Income Tax act.

3. Protect your major assets: Here is another cheap policy you can apply to protect your major assets like home and all accessories, vehicle etc. When planning for a vehicle insurance, one should go for a Third Party Insurance to meet all the expenses happening from a possible accident that cost you money as benefits to the victim. Third party insurance cover this and they will pay instead of you. If you are living in your own home, a policy to cover your home and all the assets from possible incidents, theft, fire or any kind of natural calamities will give you the maximum benefits. 4. Protect your family from any mortgages or loans you have taken: If you have a home loan and you are the only breadwinner, then you are family is in major trouble in case of any consequences happening to you. For example, you have a home loan of 25 laks and you and family is staying in that home and in case of your unfortunate demises, what will happen? Of course the lending institution inform your family to repay the loan or move from the house to road. As a part to your financial planning, you have least interest to happen this. It is a best practice to apply for an insurance on loan to deal with such circumstances. There are lots of companies providing policies on the loan amount. In this case, through the policy, you are protecting the loan taker. Suppose the loan taker dies, insurance company will pay your remaining loan amount to the lending institution and your family will be safe to live in the home. This is also a term policy and have very small non-returnable premium, yearly basis. 5. Meet the un expected situation that cost you money: There are situations to ones life not only medical but lots other. As the part of a good financial plan you should be ready to find the fund at any time if there is any such incident take place. These are such incidents or money requirements that will not have any benefits from the above mentioned policy. 6. Plan for your kid: This is the major part in your financial plan and have to take. Kids are our major wealth and there are necessary steps required to safe their future. One can plan in different way to protect their kid from possible out of money to meet their educational, marriage expenses in the future. There are various kind of ULIP’s available in the market to invest for the kids future. Providing better money management awareness to your kid is a necessary part. You can open a children specific account providing by various banks and force them to start saving by put the small amounts they are collecting from their pocket monies or from gifts. An intelligent parent always take care to provide better understand about the money to their kid. You can use different kind of best practices for your kid to grow a savings habit to them. As well as the ULIP and kids specific account, you can open a PPF account and put some amount at the end of each month regularly.

This will give you best returns from power of compounding as well as tax benefits under section 80C in India. Having a particular plan for your kid is required before starting any kind of investment or action. This can be higher education, marriage or making a money management and savings habits to your kid. With a good plan, you can certainly achieve the goal in a proper manner. The next idea to have a better future for your kid is investing to the stock market. If you are little aware about investing to the stock market, you can invest to equities through mutual funds. There are kids specific plans available in the market but before committing the investment, you should study well about the fund and its past performance and possible returns. If you are in Bangalore, you can contact me on to get all the information about your interested product especially its performance and cost information as well as the investment status of the product. 7. Plan for your retirement: This is another major part one should take care of. If you planning well for the retirement from the beginning of your career and sticking on your plan, you are in a success path. Retirement plan should have long term focus and one should take an investment for this with very long term focus. It is open to you to decide the age you plan to retire. Also, it is open to you to decide what amount you required in each month after retirement. Once you have decide both, you can go forward with an investment plan to achieve these goals. Below are the possible way you can plan your investment specifically for retirement. Equity investments: Direct equity investments with good companies spanned across various caps with a long term focus will certainly give you better returns compare with any traditional product like Bank FD’s or post office savings schemes. There are research and study involved prior to invest in stock market, to identify a good company. It is a best practice to properly diversify your amount between various selected companies across large, mid and small cap space. Through monitoring of your investment at least once in 6 month is good for a long term focused investor. Invest through Mutual funds: A good balance of mutual funds from various spaces like, large cam, mid cap, small cap, index, diversified, thematic sector with a long term perspective, can meet your retirement finance goals. Always remember the thumb rule of mutual fund investing, Invest through SIP (Systematic investment Plan) to reduce the possibility of the risk of lose. The amount investing is purely your decision depends on your age, life style and required amount after return. It is a best practice to learn maximum about the fund you are planning to invest, compare the same with its peers who has the same focus and investment theory, past and present returns history along with the performance compare with its bench mark.

Invest through index funds: This is an another option to get enough equity exposure to plan your retirement. Index funds are generally investing the equal proportion of their money to all the companies in the specific stock market index. This is a best way to have a fantastic diversification and receiving enough profit from the companies who all are listed in the focused index. It is a best practice to keep a separate amount equal to the 30% of each investment, in a special savings account to protect yourself from any consequences that may occur. In the debt space, you can select Bank FD’s, post office deposits, secured mutual funds and bonds to invest. To diversify you investment to beet inflation, you can invest to real estate, gold through, physical, ETF, Mutual funds, commodities etc.. depends on your knowledge and risk profile. Gold and real estate are certainly very good investment for handsome returns and excellent to hedge against inflation. ULIP space: Selecting a best ULIP is a difficult task. Lots of retirement focused plans available in the market from various companies. A thumb rule to select the ULIP is based on the ‘performance’ and ‘cost of the product’. If you are in Bangalore, India, you can contact me on to get suggestion on the product if you have already selected, or to identify and invest on a best product, based on the performance and cost. 8. Balancing the portfolio depends on various factors: A well mixed investment plan should have proper diversification and balance between equity and debt. The thumb rule here to reduce your age from 100 and the resulted percentage you should invest in equity and rest in Debt. E.g. if you are at 30, then 100-30=70. Invest 70 percentage in equity and rest 30% in debt. Balancing your portfolio properly depends on your age increase, is a must part to achieve proper result. 9. Requirement of financial advisor: To ease your financial planning process, the role of a financial planned is great. But, selecting a financial planner required little concentration or you will be in trouble. 10. Monitoring your portfolio: While executing your financial plan through various and proper investments, it is the final part to take care of. Monitoring. Through a good monitoring time to time, you can identify the laggards and winners in your portfolio to act as per that. Monitoring not only providing the opportunity to identify your investment performance to act as well as it is enable you to balance your portfolio till a great extend considering the major factors like your ages,

objectives etc.. For a long term perspective, a monitoring process should be there at least once in 6 months or an year. My personal advice is, one should start the financial plan as early as possible after getting his first job. This will not only enable him to accumulate wealth through simple process but doesn’t have a requirement to invest a big sum of amount to meet a specific goal.

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