2. FINANCIAL PLANNING
Financial planning is the long-term process of wisely managing one’s
finances so one can achieve his financial goals.
It is your roadmap to Financial Health, & Sustainable Wealth creation.
3. WHY FINANCIAL PLANNING IS
NEEDED?
Life without Financial planning is like Unplanned Vacation.
Manage one’s finances for the achievement of goals.
Emergency cash requirement.
Determining capital structure.
To maximize Return on Investment at minimum level of risk.
To minimize and defer income taxes and other government levies.
4. WHAT ARE COMMON EXCUSES FOR
NOT PLANNING FINANCES?
Lack of money.
No need of life insurance.
Too young to think about retirement planning.
Child’s education is more important then retirement planning.
Only rich person can make will.
5. WHAT IS THE PROCEDURE OF
FINANCIALPLANNING?
Measure financial health
Financial goal setting
Risk Profile
Decide Investment areas
6. HOW TO MEASURE FINANCIAL
HEALTH?
Before person start financial planning he/she has to determine their financial
health. Three simple personal finance rule with which a person can start
with:
a) Calculate debt to income ratio.
Debt to Income Ratio= Total monthly outgoing on liabilities(EMIs)
Total monthly income from fixed resources
Debt to Income ratio should not be higher then 30%.
7. Cont…
b) Calculate Savings to Income Ratio
Savings to Income Ratio= Total monthly savings
Total monthly income
One should save atleast 20% of their monthly income.
8. Cont…
3) Contingency Reserve
One should set aside 6 to 24 months of living expenses Contingency fund to
be used only at the time of emergencies.
9. FINANCIAL GOAL SETTING
Mandatory Goals
Purchase of home
Child’s Education
Purchase of car
Retirement
Child’s Marriage
10. FINANCIAL GOAL SETTING CONT…
Optional Goals
Up gradation of Residence.
Luxury Car.
Purchase of Luxury items at Home.
Vacation Abroad.
Wealth creation
Charity
Inheritance – Estate planning.
Early Retirement
11. Table showing some of the financial goals
according to their priority
GOAL PRIORITY TIME TILL GOAL
OCCURS
Child’s College High 9 Years
Education
Child’s Marriage Medium 12 Years
Retirement High 15 Years
Foreign Vacation Low 16 Years
12. RISK PROFILE
Inflation risk Loss of purchasing power
Primary long-term risk
Primary short-term risk Volatility risk Instability of investment
Business risk Inherent risks of a
particular business
Market risk Likelihood that the market
as a whole will fall
Liquidity risk Risk of not being able to
access money when needed
Other risks
Interest rate risk Loss of principal on fixed-
rate investments due to
rising interest rates
Currency risk Investment’s value will be
affected by changes in
exchange rates
13. HOW ARE THESE RISKS MANAGED?
Inflation risk Invest in stocks
Primary long-term risk
Volatility risk Hold investments for the
Primary short-term risk long-term
Business risk Diversify within an asset
class
Market risk
Diversify among asset
Liquidity risk classes
Diversify among asset
Other risks Interest rate risk classes
Currency risk Have an emergency fund
“Ladder” portfolios
Diversify among
countries or hedge
14. ASSET CLASSES TO INVEST
Equity
Insurance Debt
Financial
Planning
Real
Gold
Estate
15. EQUITY
Equity Mutual Fund
Equity Shares
Investment in equity is risky person should invest in equity depending
upon their Risk appetite and risk tolerance.
16. DEBT
Public Provident Fund (PPF)
Gives 8% tax free return.
Minimum investment of Rs.500.
Lock in period 15 years.
No risk involved.
Recurring Deposit
High in safety.
Not allowed to withdraw before certain period.
They are taxable.
Expected return between 6-7% depending on term.
17. DEBT
Post Office Schemes
Offer 8% of savings
Returns are taxable and most schemes have a lock in.
Debt-Based Mutual Fund
Investment through Systematic Investment Planning
Dividends are tax free.
Capital gain tax applies at the time of selling of units.
18. REAL ESTATE
Real estate is profitable option to invest one’s money in but it is not risk
free.
Risk involved in real estate investment are
Getting bad tenant.
Market decline.
20. GOLD
Gold is risky as gold price can fluctuate sharply.
Therefore only 10-15% of the portfolio should be allocated in gold.
Physical gold is more risky then gold ETFs, E-Gold and Gold FOF.
Unlike other type of gold investment physical gold is not price transparent.
Buy back of physical gold is not on market prices but after deducting high
making charges.
21. INSURANCE
Aim of insurance is to cover the risk and provide financial
compensation for any unexpected losses. Such as:
Personal Risks-Loss of income.
Property Risks- Damage to property.
Liability Risks- Losses due to damage to others.
22. INCOME SCHEMES
P.P.F. N.S.C. BANK Floating rate
F.D. Funds
Return % 8% 8% 6-8% 5-6%
Tax-free Yes NO NO Yes
Rebate on Yes Yes Yes if >5 year No
Investment
Liquidity 50% 6 year lock in Lock in as per No lock in
withdrawal term of F.D.
after 5 years
23. WHAT ARE HURDLES IN FINANCIAL
PLANNING?
Lack of funds.
Lack of knowledge regarding financial assets.
Misguiding Schemes.
Difficulty in finding appropriate financial planner.
24. 5 DO’s OF FINANCIAL PLANNING
Emergency Cash
Medical Insurance & Life Insurance
Child Education Fund
Retirement Fund
Make a Will
25. HOW TO RAISE EMERGENCY CASH?
Credit Card
Loan Against Securities
Selling Assets
Personal Loan
Advance Against Salary
Borrowed From Friends & Relatives
26. 8 DON’T’s OF FINANCIAL PLANNING
Don’t think credit
Don’t delay investment
Don’t ignore inflation
Don’t be careless in the market
Don’t dip into that retirement fund
Don’t cash your Employees Provident Fund
Don’t ignore tax saving tools
Don’t economize on insurance
27. HOW TO CHOOSE FINANCIALPLANNER?
Understands Your Planner’s Personality
A Planner helps you to make planned investment
Understand the Expertise of your planner
Is your planner proactive?
Is he well-versed with tax laws?
28. CONCLUSION
Keep investment simple.
Start investing early.
Invest regularly.
Monitor investment every 3-6 months.
Stay invested for long time.
Take experts help.