Plan your work, work your plan pywwyp Financial Planning Plan your work, work your plan pywwyp

Let us use the 5W-1H approach to understand Financial planning WHY Objective WHO People WHAT Concept HOW Method WHEN Situation WHERE Processes

What is financial planning? Financial Planning is the process of meeting your life goals through the proper management of your finances. Examples of goals: Buying a house; Higher Education for children or self; marriage for children or self; taking a holiday; buying a new car For the proper management of your finances, you need to make your money work for you, and use the right proportion of asset classes First build the foundation Emergency fund Insurance - life insurance, medical insurance, general insurance, motor vehicle insurance Then look at investment Safe investments – low risk, low return Aggressive investments – high risk, high return – equity; Dabble directly in shares if you have the time and the appetite; Else do the SIP option in mutual funds – you can choose pure equity funds, or equity and debt mixed funds (also called as hybrid funds) or pure debt-funds; many websites help to compare Depending on the needs and as a gradual process, set aside money for Gold esp. needed in our culture for weddings Home / land Remember every asset class has its specific needs, pros and cons

What is financial planning?...contd We will now spend some time discussing the different asset classes. They can be of two types, risk-management based, investment returns based Risk-management based Emergency fund = Maintain a Fund with 3 to 6 times of your monthly expenses in cash or near cash investments. Life insurance – They are based on human life value = 10 to 15 times of your annual income They cover the risk of death, which is a definite thing. Based on life-stage, dependents and needs, different types of plans can be chosen – pure-term insurance, endowment, whole-of-life; benefit can be either death benefit or maturity benefit depending on the plan. There are also money-back plans Vehicle – this is mandatory as per law Medical, general – better to take, these are indemnity based, the payout is not assured, it is based on assessment of the damage Investment returns based Post-Office deposits, Bank fixed deposits, Govt bonds, PPF, KVP Mutual funds – debt-based, Mutual funds – hybrid of debt and equity, Mutual funds – equity-based Direct equity Commodities Gold coins / bars, Gold ETF Silver, Others Financial planning is Risk planning, Tax planning, Investment planning, Planning for major spend milestones, Retirement planning, Estate planning

Why to do financial planning? Human beings go through different stages in life, during which needs are different. The financial needs in later stage of life are more, but at that time earning capacity is either over or limited. So we need to set aside money and do the planning for future needs, today In the current hyper-connected world, financial planning is more important due to Greater risks of interruptions in income-streams Longer life-spans Greater transparency and availability of options Greater aspirations Higher cost of living There are many avenues to do planning – one needs to make a judicious selection and be proactive Financial planning helps us get into the habit of saving Financial planning can help us get specific amounts at specific milestones and supplement the overall need for those milestones Life Insurance is a part of financial planning and a way by which we can set aside a certain provision for taking care of our loved ones in the light of any unfortunate eventuality

When, who for and where to do financial planning? When to do financial planning? As soon as you start to earn Plan to address specific needs at specific points of time Who for whom to do financial planning It can be for entire family, like buying a house or car Or for children’s marriage, Or for the life insurance of bread-earner Where to do financial planning At your home At the offices of different providers of services

How to do financial planning?...some principles Ask why money is important to you – i.e. what are your goals? Plan for retirement accounts every year, Plan for kids’ education and marriage Plan to buy a house Guess where you want to go These plans are over a long time, its not feasible to have an exact determination. But go with some guidelines, and keep revisiting from time to time No matter what, don’t throw your hands up completely and say that since you can’t predict the future, you won’t make a guess at all. Make a projection, but don’t worry about getting it “right,”. You can always do a course-correction later on Know your starting point. In order to get where you want to go, it’s important to know your net worth — how much you have in assets, and what your liabilities are. Do not feel squeamish about this – face reality in its face Some people may even be so ashamed of their past actions they will feel like avoiding this step – don’t avoid Think of budgeting as a tool for awareness Save as much as you reasonably can Buy just enough insurance — today As you delay buying this, the cost keeps going up People make two mistakes with life insurance. First, they put off buying it — either because it doesn’t seem urgent if their health is good or because it involves having a conversation most people would rather avoid. Or, they let fear drive their decision when purchasing life insurance. Life insurance is about replacing economic loss, not emotional loss, so if you view it in that cold hard light, you just have to calculate what that loss will be and find the right insurance to do that job Be wary of credit card debt Invest like a scientist, as if it is your work-related thing Be disciplined Seek info from experienced people like financial advisors

How to do financial planning?...some basics Analyze your monthly income and expenditure statement and decide how much you can save Set aside for emergency funds Make your calculations for insurance, and start an insurance plan Post insurance, how much are you able to save What type of investments are you comfortable with – different options for different types of investments For stocks and equity mutual funds you can use a demat account like sharekhan You can also buy mutual fund units directly from AMCs through their online…this is slightly cheaper For post-office investments open an account in post-office, for PPF you can open in your bank, similarly for FD Remember Long-term capital gains is zero for equity, but in real estate, even LTCG is taxed, though you can make some investments and avoid it

A useful comparison

Types of insurance plans in LIC Assured sum based Cash value based Endowment based 8 plans Endowment + Whole of life 1 plan Moneyback 4 plans Children 2 plans Pension No Cash value based Term plans Indemnity based Health insurance General insurance Vehicle

Types of insurance plans in LIC Endowment based New Endowment plan Regular premium paying, non-linked, endowment assurance, with profits plan; min. entry age = 8 years Single premium endowment Single premium paying, non-linked, endowment assurance, with profits plan; min. entry age = 90 days Jeevan Rakshak Regular premium paying, non-linked, endowment assurance, with profits plan; min. entry age = 8 years; max BSA is capped at 2 lacs Limited Premium Endowment Limited premium paying, non-linked, endowment assurance, with profits plan (PPT is < policy term) Jeevan Lakshya Limited premium-paying, with profits endowment assurance plan which provides annual benefit New Endowment Plus This is a Unit-linked assurance plan with option to invest in 4 types of funds. Jeevan Labh Limited premium-paying, non-linked, with profits endowment assurance plan Jeevan Pragati Regular premium paying, non-linked, endowment assurance, with profits plan; risk cover increases after every 5 years of the policy

Types of insurance plans in LIC Other plans Endowment + Whole of life Jeevan Anand Regular premium plan, combination of endowment and whole of life Moneyback New Bima Bachat SP Single premium money back type plan in which survival benefits at 15% of SA are paid back on 3rd, 6th, 9th and 12th policy years New Money back – 20 years Limited PPT, non-linked, with profits, money back plan – policy term is 20 yrs, PPT – 15 years New Moneyback – 25 years Bima Diamond Limited PPT, non-linked, with profits, money back plan – policy term is 20 yrs, PPT – 15 years; provides cover after maturity period also Children New Children’s Money back Regular premium, non-linked, with profits, money back plan – min age at entry is 0 years Jeevan tarun Regular premium, non-linked, with profits, money back plan – min age at entry is 90 days; pwb rider is there. Pension Jeevan Akshay - VI Single premium, immediate annuity plan, min age at entry = 30 years, max age at entry = 85 years New Jeevan Nidhi Conventional with profits pension plan with reg premium and single premium options

Types of insurance plans in LIC Term plans Anmol Jeevan - II Regular premium paying, without profits, pure protection plan for life cover at low cost; min SA = 6 lakhs, max SA = 24 lakhs Amulya Jeevan - II Regular premium paying, without profits, pure protection plan for life cover at low cost; min SA = 25 lakhs, max SA = no limit

References http://www.forbes.com/sites/laurashin/2015/03/31/the-1-page-financial-plan-10-tips-for-getting-what-you-want-from-life/#2b61cabc3960