PERSONAL FINANCIAL PLANNING

Dr.N.GOPINATHAN
ASSOCIATE PROFESSOR
VELLORE INSTITUTE OF TECHNOLOGY
(VIT)
CHENNAI
 Personal Finance
Q: How many of you have dreamed of
retiring and becoming a
multimillionaire by the time your 40?
Q: How do you think you would
achieve that?
 MILESTONE ONE’S LIFE
o Birth and School Education
o College Education
o Getting a Job
o Purchase of Car
o Entering the Familyhood – Marriage
o Purchase of Building/Flat
o Birth of Child
o Education of Children
o Marriage of Children
o Retirement
o Death
 INTRODUCTION
• Imagine yourself trapped in a maze filled with
twists and turns, blind alleys, and dead ends.
Wouldn’t exiting it be simpler if you had a
map and compass to guide you? Your financial
life can be a maze, and a personal financial
plan is the map and compass that can help
guide you through that maze.
“FAILING TO PLAN IS

PLANNING TO FAIL”
Planning is the process of
deciding in detail how to do
something before you actually
start to do it.

It means looking ahead and

chalking out the future course
of action to be followed.
FINANCIAL PLANNING:

Financial planning is the process of meeting your life

goals through proper management of your finances.

PERSONAL FINANCIAL PLANNING:

Personal finance is the financial management which an

individual or a family unit performs to budget, save, and
spend monetary resources over time, taking into account
various financial risks and future life events.
Many financial alternatives are available
Extensive information is available to help decide which
alternative to choose
Wise decisions enable the achievement of financial
goals
Financial planning assists in making wise decisions
Income refers to a source of cash inflow that an individual receives
and then uses to support themselves and their family. It is the
starting point for our financial planning process.
Common sources of income are:
Salaries
Bonuses
Hourly wages
Pensions
Dividends
Spending includes all types of expenses an individual incurs related
to buying goods and services or anything that is consumable. The
majority of most people’s income is allocated to spending.
Common sources of spending are:
Rent
Taxes
Food
Entertainment
Travel
Saving refers to excess cash that is retained for future investing or
spending. Managing savings is a critical area of personal finance.

Common forms of savings include:

Physical cash
Savings bank account
Checking bank account
Money market securities
Investing relates to the purchase of assets that are expected to
generate a rate of return, with the hope that over time the
individual will receive back more money than they originally
invested.
Common forms of investing include:
Stocks
Bonds
Mutual funds
Real estate
Personal protection refers to a wide range of products that can
be used to guard against an unforeseen and adverse event.
Common protection products include:
Life insurance
Health insurance
Estate planning
Good financial management comes down to having a solid plan
and sticking to it.

The main components of the financial planning process are:

Assessment
Goals
Plan development
Execution
Monitoring and reassessment
Figure out what matters to you. Put everything, from the
practical and pressing to the whimsical and distant, on the
table for inspection and weighing.

Sort out what’s within reach, what will take a bit of time,
and which must be part of a long-term strategy.

Apply a SMART- goal strategy. That is, make certain your

ambitions are Specific, Measurable, Achievable, Relevant, and
Timely. SMART.
Create a realistic budget. Get a strong handle on what’s coming
in and what’s going out, then work it to address your goals. Use
your budget to plug leaks in your financial ship.

With any luck, your tough, realistic, water-tight budget will

show at least a handful of leftover dollars. Whatever that amount
is, have it automatically directed into a separate account designed
to address the first couple of things on your list of priorities.

Monitor your progress.

Sl. No. Type of Short Intermediate Long
Individual Term Term Term
1 Just Joined a Job Rent an apartment – (H) Repay educational loan in 3 years (M) Start investments for
Arrange for down payment Purchase a small sized car retirement planning (H)
for purchase of motorcycle – (M) Purchase high end car
(M) Get married (H) Audi/BMW (L)
Go for a foreign tour – (L) Arrange for Go abroad for higher studies
margin money for purchase of flat – (H) (M)

2 Married Couple – Have a kid (M) Kid’s schooling (H) Construct an investment
DINKS Go for North India tour (H) Go for Europe tour (M) Go for a high portfolio (H)
(Double Income end car (L) Make provision for early
No Kids) retirement of wife (M)

3 Married Couple with College admission of children Marriage of children (M) Purchase an Diversify investment portfolio
School going children (H) Review Life and General independent house with three bedroom (M)
Insurance (M) (H) Save money for sending children
Purchase second car (M) abroad for higher studies (L)

4 Married Couple with Wife Buy new furniture (H) Plan Review the current insurance and medical Decide about the retirement age
taken Retirement and to visit your married insurance policies for its sufficiency and (H) Decide about where to stay
Husband nearing daughter’s place (M) take suitable action (H) Travel to post retirement (M)
Retirement (50s) pilgrimage and pleasure tour (M)
The time value of money (TVM) is the concept
that money available at the present time is
worth more than the identical sum in the
future due to its potential earning capacity.

This core principle of finance holds that,

provided money can earn interest, any amount
of money is worth more the sooner it is
received.
 Present Value is the same as Time Value as elaborated
above. It is the money you have currently that is equal to a
future one-time disbursal or several part-payments –
discounted by a suitable rate of interest.

Future Value is the sum of money that any saving scheme

with a compounded interest will build to by a pre-decided
future date. It applies to both lumpsum as well as recurring
investments.
Opportunity cost refers to the value
forgone in order to make one
particular investment instead of
another.
Opportunity costs represent the
benefits an individual, investor or
business misses out on when
choosing one alternative over
another.
Planning is for the rich
Insurance planning is financial planning
Tax planning is financial planning
I am too young to think about financial planning
Confuse financial planning with investment
QUERIES IF ANY