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Objectives Of Financial Planning Research Team | Posted On Tuesday, March 24,2009, 05:26 PM

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Objectives Of Financial Planning



What is Financial Planning?

Financial planning is a systematic approach whereby the financial planner assists the customer to maximize his existing financial resources by utilizing financial tools to attain his financial goals. In other words, financial planning is the process of meeting your financial goals through proper management of your financial resources.

1. Protecting yourself and family

Major cash losing loopholes in financial planning are the medical expenses. One who has parents and young kids must enough care to provide all the forthcoming requirements of medical treatments for them. First part of your financial plan is protecting your family and yourself through a best Mediclaim policy available in the market. Once you have applied and successfully finished the part of Mediclaim policy, you are free from any expenses that might occur due to medical treatment requirement from yourself or dependents. This option will not only give you protection from medical expenses to you and your family but also, provide the income tax benefit under section 80D in India.

2. Secure your family in case of any consequences happening to your life

This is the part planned to the future of the family. Suppose you are the only breadwinner in the family and something happening to you will affect the entire family at the maximum worst. You must be prepared to overcome such situations in a cost effective manner. The finest solution for this is to take a term insurance policy instead of any traditional products or ULIP’s from LIC or any other Private companies. You can decide the nature of a term policy such as the level of protection required and pay a premium as per that. This will be very cost efficient manner. Term policy commonly has a less premium with huge protection. The thumb rule on the amount of protection is 7 X your annual income. In term policy, the nominee will receive the entire assured amount in case of the sudden death of the policy holder. Once you have completed the term policy term without any issues, then you will not get back the premium you paid for the policy term. Remember, when applying for a term policy; do it as early as possible. Term policy premium increase is depends on your age of entry and that amount will continue till the end of policy year. Applying early will give you the benefit of less premium amount all through the policy terms. Also, keep in mind to get the maximum policy term once you applying for a term policy. The other important aspect of term policy is, providing you tax exemption under Indian Income Tax Act.

3. Protect your major assets

Here is another policy you can take to protect your major assets like home and all accessories, vehicle etc. When planning for vehicle insurance, you must go for a Third Party Insurance to meet all the expenses occurring from a possible accident that cost you money as benefits to the victim. Third party insurance covers this and they will pay on behalf of you. If you are living in your own house, a policy to cover your home and all the assets from possible incidents like theft, fire or any kind of natural calamities will give you the maximum benefits.

4. Protect your family from any mortgages or loans you have taken

If you have a home/mortgage loan and you are the only breadwinner, then your family is in major trouble in case of any consequences happening to you. For instance, you have a home loan of 35 lakhs and you and family is staying in that home and in case of your unfortunate death, what will happen to your family? Obviously the lending institution will inform your family to repay the loan or move from the house to road. As a part of your financial planning, you may not be interested to happen this. It is a best practice to apply for insurance on loan to deal with such situations. There are lots of companies providing policies on the loan amount. In this case, you are protecting the family through the policy. Suppose you die, insurance company will pay your remaining loan amount to the lending institution and your family will be safe to live in the home. This is also a term policy and have small non-returnable premium.

5. Meet the unexpected situation that cost you money

There are circumstances to one’s life not only medical but lots other. As the part of a good financial plan you must be ready to find the fund at any time if there is any such event take place. These are such money requirements that will not have any benefits from the above mentioned policy.

6. Plan for your kid

This is the important part in your financial plan and has to take. Kids are our major wealth and there are necessary steps needed to safe their future. One can plan in various ways to protect their kid from possible out of money to meet their educational and marriage expenses in the future. There are different kinds of ULIP’s available in the market to invest for the kid’s future. Providing better money management awareness to your kid is an essential part. You can open a children specific account providing by various banks and compel them to start saving by put the small amounts they are collecting from their pocket monies or from gifts.

A clever parent always take care to provide better understand about the money to their kid. You can use a range of best practices for your kid to grow a savings habit to them. As well as the ULIP and kids specific account, you can open a PPF account and deposit some amount at the end of each month. This will provide you best returns from power of compounding as well as tax benefits under section 80C in India. Having a particular plan for your kid is necessary before starting any kind of investment or action. This can be higher education, marriage, or making a savings habits to your kid. With a good plan, you can surely achieve the goal in a good manner. The next idea to have a better future for your kid is investing in the stock market. If you are little aware about the investments in the stock market, you can invest in equities through mutual funds. There are kids specific plans available in the market but before committing the investment, you must study well about the features of fund and its past performance and possible returns.

7. Plan for your retirement

This is another important part one must take care of. If you are planning well for the retirement from the beginning of your career, you are in the success path. Retirement plan must have long term focus and one must take an investment for this with very long term focus. It is open to you to make a decision on the age you plan to retire and what amount you need in each month after retirement. Once you have decided both, you can go for an investment plan to achieve these goals. Below given are the possible ways you can plan your investment particularly for retirement.

  • Equity
  • Mutual funds
  • Index funds
  • ULIP space
  • Bank FD’s

8. Balancing the portfolio depends on various factors

A well organized investment plan must have proper diversification and balance between equity and debt. Equity is always risky compared to Debts. According to the growth in age the risk taking capacity of a person decreases. To find out what is the affordable ratio of Debt and Equity for a person there is a simple rule, reduce your age from 100 and the resulted percentage you can invest in equity and rest in Debt. For instance; if your age is 30, then 100 – 30 = 70, in this case invest 70% in equity and rest 30% in debt. Balancing your portfolio properly depends on your age and income.

9. Requirement of financial advisor

To make your financial planning process effortlessness, a financial planner plays very important role. But, selecting a financial planner should be very careful or you else will be in trouble.

10. Monitoring your portfolio

While implementing your financial plan through various investments, monitoring it is the final part to take care of. Through a good time to time monitoring, you can identify the strong and weak points in your portfolio to act as per that. Monitoring not only gives you the opportunity to recognize your investment performance to act but it enable you to balance your portfolio till a great extend considering the major factors like your age, objectives etc. From a long term viewpoint, a monitoring process must be there at least once in 6 months or a year.

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