Financial Planning

Oct 13, 2013 No Comments by

FINANCIAL PLANNING

Financial Planning: It reminds me of my days in school when I received monthly pocket money from my Dad. I am sure most of us remember those days of glory, freedom, as they were best known for having zero responsibilities. However if one looks back, you would have planned to a certain degree on when and how to spend the money instead of squandering it irrationally.

Today’s world is no different than our school days. As Uncle Ben (in the movie Spiderman) said “With great power comes great responsibility’.” Likewise, with the money that we manage today, our responsibilities have only increased multifold.

So how does one manage his/ her earnings in a more prudent way?

Well the answer is Financial Planning! It is a comprehensive process of achieving an individual’s Financial Goals after carefully assessing his/her current financial scenario and drafting a plan factoring in the future needs and requirements.

Financial planning consists of many areas, the first being risk management. Before an individual can plan how to go about managing money, he should first concentrate on protecting the risk that he is exposed to. To mention a few, the basic risks to be covered are health, life and financial liabilities.

To illustrate this, let’s understand what a 38 year old married man with wife and 2 kids, who is the sole breadwinner of the family, may require.

Firstly, he should have enough health insurance cover to protect himself and his family of any medical contingencies to take care of the hospital expenditure.

Secondly, as he is the sole earning member, he should have adequate life cover to protect his dependents’ living expenses in case of an eventuality and lastly, in case he has any financial liability on his name like a home loan, that too needs to be insured.

The best and cheapest form of insurance cover to protect life & liability is through Term Insurance as it provides pure insurance cover.

Once the risk cover is in place, it then leaves an individual to put down his financial goals in chronological order with amount, draw down an income and expense budget to arrive at the monthly savings.

The objective of the plan at all times should be to invest in the right manner, which helps to achieve the financial goals.

While making the Financial Plan, the focus should be to arrive at the right asset allocation for the investment portfolio. This would depend on the occurrence of financial goals as well as the risk appetite of the individual, let’s say a 25 year old individual who has just started his career will have more risk taking ability than a 55 year old man who is nearing retirement and would like to have majority of his investment portfolio in secure assets, earning stable returns.

A sound financial plan should be constantly assessed and reviewed to factor in the changes that may arise in the income, expenses and goals. Thus, the right approach is to get your Financial Plan prepared by a Financial Planner, a professional who carries the expertise and who will be able to advise you in the right direction.

The best way to begin is to start Now! Identify your risks, set your financial goals and approach a Financial Planner who will draft a plan and advise on the appropriate mix of assets for your investment portfolio to achieve your goals!

 

Investment

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