Are you finding it difficult to save
every month and want to avoid financial friction? The only way you can protect
and preserve yourself and your family is by astute financial planning
Pankaaj
Maalde (Published in Tribune - Chandigarh on 3rd Sept.'2012)
Most of the people are ignorant about
the financial planning and also hesitate to pay for the financial advice. Most
of us seek financial tips either from an insurance agent or a mutual fund
advisor who will be more interested in closing their sale deal instead of
understanding your future needs. Taking advice from tax professionals or
chartered accountants for insurance or investment is not a good option as it is
restricted to taxation matters only. Here, it is a commission driven market and
a fee-based practice is still not acceptable to investors.
Financial
planning
Financial planning plays an important
role in our life. It can be described as a long term process of wisely managing
finances so that you can achieve your financial goals. It does not mean using
different investment instruments or structures than you may be investing in
now. It is using the same instruments in a systematic goal-oriented manner. It
brings discipline in our saving and investment. It helps us to set realistic
goals and also priorities them. We can easily reach to our destination safely
and timely if we set some basic rules for investment and act accordingly.
Unwillingness to pay a fee to a professional and complexity of the products
available in the market leads to buying wrong products which may not suit
individual's future needs. One should analyse properly about their future goals
before buying any product and avoid taking such steps which can spoil their
financial plan. Financial planning is nothing but knowing where you are today
and where you want to reach in the future.
BENEFITS OF FINANCIAL PLANNING
- Adequate funds have to be ensured
- It helps in ensuring a reasonable balance between outflow and inflow of funds
- It maintains financial stability
- Reduces uncertainties with regards to changing market trends
- It helps in making growth and expansion programmes
Handy tips
Here are some financial planning tips which can help you in making a right decision depending on the future needs.
- Build a contingency fund of six months of your household expenses, along with education expenses, EMI and insurance premiums. This money will help you in critical situations when the income of the family stops due to some unavoidable reasons like job loss, strike, lock out or disability due to critical illness or accident.
- Always keep your insurance and investment separate. You should always take a term insurance plan preferably an online term plan to have enough life-cover.
- You should have enough Mediclaim policies with added top up plan for each member of your family to take care of expenses arising out of hospitalizations. If it is not possible to get a health insurance for your parents due to age or health issues then it is advisable to maintain a medical contingency fund for parents.
- Set realistic and achievable goals. You should always list down all your plans on a piece of paper and then prioritize them. Prioritizing is important as we have limited resources whereas our goals are multiple.
- Each and every asset and investment should be mapped to one particular goal and should not be touched otherwise. Always invest in joint name with either or survivor option.
- Do not invest directly in equity. Direct investment through stock markets requires an in-depth research and analysis. Also, stay away from commodity trading.
- Invest systematically in equity - invest through SIPs in a good mutual fund scheme and don't try to time the market. Invest in a diversified equity fund and don't invest in thematic or sectoral fund.
- Never overboard on any single asset class. Always maintain asset allocation depending on your goals and time horizon.
- Start moving your assets from risky assets like equities or real estate investments to debt instruments systematically when your goal is around two years away.
- Take a loan wisely. Your EMIs, including all loans, put together should not be more than 35% of your monthly income. Don't delay your credit card bills/loan EMIs - both of them can affect your credit worthiness badly. Get your CIBIL report to know your credit score.
- Review your investment and revisit all your goals once in a year. Also rebalance your portfolio as per your asset allocation if required.
- Keep all your insurance and investment documents at one place and inform your spouse or to someone whom you trust. Keep a copy of all documents in locker or with some trusted person.
- Make sure that you have put nominations for all your investments and insurance and they are reviewed and updated periodically.
- Prepare a will to plan for your estate and to avoid property-related disputes after death of the owner. Nominee does not become absolute owner but holds the investment assets except shares as a trustee on behalf of all legal heirs.
It is always advisable to hire a
financial planner to prepare a full financial plan for the family. Financial
planners offer unbiased fee-based advice which can help you to achieve your
financial goals. They take care of all finance-related matters just the way a
doctor takes care of all health issues. It is also advisable to separate
execution from the advice and buy all recommended products from the third
party. It is important to review the plan periodically i.e. at least once in a
year and also important to rebalance the investment portfolio. Financial
Planning does not only help you in achieving your financial goals but also
gives peace of mind.
(The author is head of financial
planning at Apnapaisa.com, an online insurance price & features comparison
engine for loans and investments. The views expressed are his own)
