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

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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. A useful comparison

10. 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

11. 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

12. 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

13. 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

14. References