Comprehensive Financial Planning

Everyone has various financial goals in life. Through proper Financial Planning you can achieve your various financial goals in life like:

• Planning and accumulating funds for your children's education and children's marriage
• Building a retirement corpus so that you can enjoy the same existing lifestyle without having to worry about funds for the same in your retirement years
• Accumulating funds for buying a house, buying a two wheeler or four wheeler
• Accumulating funds for regular vacations domestic or abroad
• While planning for all the above financial goals you can make the best use of all the available income tax exemptions and deductions (Section 80C, 80D, 80E, Section 24) so that you can avail maximum income tax benefits from your investments
• Make sure on the path to fulfilling the financial goals you have adequate life insurance protection to cover all your liabilities, in case of untimely death, so that the family does not face financial problems in your absence.

Why does one need to do financial planning?
A financial plan is a roadmap to realise and achieve financial goals and fulfil dreams in life. 
Common Financial Goals that Every Person has in Life:
Everyone has various financial goals in life. Through proper Financial Planning a person can achieve various financial goals in life.
Every Financial Goal revolves around a Number. Sample this……..

• Will Rs 20 Lacs be enough for my son's MBA 15 years down the line?
• Will Rs 9 Lacs take care of my daughter's wedding 3 years from now?
• Will I be able to buy a house worth Rs 35 Lacs 7 years from now?
• Will I be able to enjoy a vacation with my family once in every 3 years?
• How do I retire with an Rs 1 Crore retirement fund?

Do all the above questions bother you? Then welcome to the world of Financial Planning. With systematic financial planning and disciplined monthly savings you can achieve all the above financial goals in life.

How can Financial Planning help?
Proper Financial Planning can help a person plan and accumulate funds for his/her children's education and marriage, plan and accumulate funds for buying a house or a vehicle of choice, accumulate funds for regular vacations domestic or abroad. Financial Planning can also help a person build a retirement corpus so that he/she can enjoy the same existing lifestyle without having to worry about funds during the retirement years.

• Tax Planning: While planning for all the above financial goals, Financial Planning helps a person to make the best use of all the available income tax benefits, so that he/she can avail maximum income tax benefits from investments.
• Insurance Planning: Financial Planning makes sure on the path to fulfilling the financial goals; a person has adequate life insurance protection to cover all liabilities, so that in case of untimely death, the family does not face financial problems.

 Step by Step process of Financial Planning
Financial Planning can help accomplish the following goals in life step by step:

1. Building an Emergency Fund: As a first step a person should build an emergency fund (3-6 times of current monthly expenses of the family) to meet unexpected expenses like medical emergencies or hospitalization, temporary job loss, job change etc.

 

1. Insurance: This is the second step after building an emergency fund. Financial Planning is incomplete without insurance. The life insurance amount should be able to cover liabilities like home loans, children's education expenses and marriage expenses and emergency medical expenses. In case of untimely death of the family bread earner, the family should not suffer financial loss. A person should also opt for a health/medical insurance policy for the entire family so that any medical emergency is taken care of.

A person's future earning potential should be considered while deciding the required life insurance amount. To know more about Human Life Value please read Case Study 3 on Insurance Planning below.

1. Children's Education Planning: Once the Emergency Fund and Insurance part is taken care of, a person can focus on his/her important near term financial goals like planning for children's education and marriage, plan to buy a house, 2/4wheeler etc. This is the 3^rd step in financial planning. Why should one start planning for his/her child's education from early on?

Increase in Education Costs: In the recent years education costs have soared up a lot. An MBA Course that costs Rs 4,00,000 today will cost a whopping Rs 10.37 Lacs 10 years from now if education expenses increase at 10% every year.
Falling Return on Government Saving Schemes: In the last few years interest rates on Fixed Saving Schemes have fallen from 12% to 8%. Previously if a person invested Rs 25,000 every year in a PPF account at 12% for 20 years he would have roughly Rs 20.17 Lacs in 20 years. But today at 8% the same investment of Rs 25000 every year will yield only Rs 12.35 Lacs after 20 years. This is a fall of roughly Rs 8 Lacs.
So it's a dual dilemma for parents because on one side education costs have gone up and on the other hand the returns on fixed income securities have come down. Hence there is need for prudent financial planning for children's education.

Do you have a small kid ???? Want to make him a MBA or an Engineer or a Doctor or something else ……… Want to know how much will his higher education cost 10 years or 15 years or 20 years down the line???? Want to know how much you should invest every month for your kid's education …………. Financial Planning can answer all your questions ……… all you need to do write to us at gopal_gidwani@yahoo.com

To know more about Children's Education Planning please read Case Study 1 for more details below.

1. Children's Marriage Planning: Like education, it is the same story for children's marriage expenses. If you as a parent feel that today your daughter's marriage will cost you Rs 7,00,000, the same marriage will cost Rs 11.27 Lacs 5 years down the line if marriage expenses increase (inflation) at the rate of 10%.

For your daughter's marriage do you have a fixed marriage expense amount in your mind as on today???? Do you want to know how much it will cost 5 years or 10 years or 15 years down the line???? Do you want to know how much you should start saving every month from today onwards for your daughter's marriage? If all these questions bother you, write to us at gopal_gidwani@yahoo.com. Financial Planning can take care of all your above worries.

To know more about Children's Marriage Planning please read Case Study 1 for more details below.

1. Planning for Purchase of Assets and Vacations: People have various goals at various stages of life. These goals can be buying the first house or moving to a bigger house or planning for a second house, buying a two wheeler or buying the first car or buying a luxury car, going for regular vacations which can be domestic or abroad or going for a world tour or going for a cruise. Proper financial planning can help the person fulfil all these goals.

1. Retirement Planning: Retirement planning helps a person maintain the same standard of living that he/she was enjoying before retirement. But the big question we need to ask ourselves is whether we have made enough saving/investment provisions to enjoy the same kind of lifestyle post retirement???

What lot of us fail to realise is that retirement has a dark side also. Retirement along with it brings no income phase, rising cost of living (inflation) and soaring health care costs.

Does this scenario leave you worried? Don't worry there is help at hand. Little bit of prudent and disciplined financial planning can ensure that you can leave aside your worries and enjoy retirement playing golf, a luxury sport which is believed to be meant for the higher class.

To know more about Retirement Planning please read Case Study 2 for more details below.

1. Income Tax Planning: Tax planning is an integral part of financial planning. While deciding on investments for children's education or marriage, retirement fund and life insurance, financial planning will help you take maximum advantage of income tax benefits available on investments made in products covered under Section 80C and other sections of the Income Tax Act.

Following are 3 sample case studies for Children's Education and Marriage Planning, Retirement Planning and Insurance Planning.
Case Study 1: Child Education and Marriage Planning Sample Case Study

• Sharon has an 8 year old daughter Mini. Sharon needs to accumulate funds for her daughter's MBA and her marriage.
• The MBA course is 12 years away and marriage is planned 16 years from now.
• As on today the MBA course costs Rs 3,00,000. If education costs rise by 10% every year (inflation), the same MBA will cost Rs 9,41,528 after 12 years.
• To accumulate this Rs 9,41,528 over a period of 12 years Sharon will have to invest Rs 3085 per month if her investments will earn a return of 12% p.a.
• Mini's marriage is planned 16 years from now. According to Sharon, as on today, Mini's marriage will cost Rs 4,00,000. If inflation (rise in costs) of 5% is assumed the same marriage will cost Rs 8,73,150 after 16 years.
• To accumulate this Rs 8,73,150 over a period of 16 years Sharon will have to invest Rs 1615 per month if her investments will earn a return of 12% p.a.

 
Case Study 2: Retirement Planning Sample Case Study

• Avinash is a 38 year old person earning Rs 6,00,000 per annum. His current monthly expenses are Rs 20,000 (Rs 2,40,000 per annum). Avinash wants to build a retirement fund which will help him maintain the same life style (as today) during his retirement years.
• Let us assume Avinash's expenses go on increasing by 5% (inflation) every year. 22 years down the line in his 1^st year of retirement Avinash's annual expenses will increase to Rs 7,02,062.
• Avinash's life expectancy post retirement is 20 years (till 80 years). Post retirement inflation is 5% and return on investments is 8%. The retirement corpus that needs to be accumulated at the beginning of retirement (61^st year) is Rs 1,08,86,615 (approx Rs 1.08 crore) to help him last (survive) 20 years post retirement.
• To achieve this target of Rs 1.08 crore at the beginning of his retirement, Avinash has 22 years (current age 38 years). Avinash will have to invest Rs 9306 every month till retirement to achieve his retirement target (return on investment assumed is 12%).

 
Case Study 3: Insurance Planning Sample Case Study

• Insurance should be calculated taking into consideration the future income earning capacity of the person during the remainder years of his working lifespan.
• Example: Rajesh is 22 years old, earning Rs 4 lacs per annum.
• If we assume that Rajesh's salary will increase by 5% every year, then by the time Rajesh retires at age of 60 years he would have earned Rs 4,30,83,818 (approx Rs 4.3 crores) during his entire working life. So Rajesh's worth is Rs 4.3 crore.
• But if something happens to Rajesh today, his family stands to lose this money which Rajesh would have earned if he would have survived till the age of 60.
• So this Rs 4.3 crore is Rajesh's future earning potential which he should protect. This should be considered while deciding the life insurance amount.