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Personal financial planning

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Personal financial planning Presentation Transcript

  • 1. PERSONAL FINANCIAL PLANNING AND LIFE INSURANCE
  • 2. Introduction
    “Thodisitu lift karade
    Bangla motor car dila de
    Eknahin do char dila de ”
  • 3. What is financial planning ?
    Making funds available from one’s current resources to meet future needs
    Entire gamut of FP explained by RETIReS
    R……. Risk
    E……. Estate
    T……..Tax
    I………Investment
    Re……Retirement
    S………Savings
  • 4. Core of FP
    “If you want to know what God thinks of money, just look at the people he gave it to ”
    Dorothy Parker
    No sane man would like loose out his money
    People like to derive maximum utility from use of money
    When it comes to savings & investment, we want our money to give us best returns
  • 5. Contd……
    FP is an attempt to maximise returns keeping in view liquidity and safety of funds.
    Good financial planning will not protect one against crises arising out of unforeseen circumstances.
    It cannot avert the circumstances, but can provide necessary financial support
    FP can be of short/long duration
    Plan for shorter duration ensures proximity to reality
  • 6. FACTORS DETERMINING FP
    Country’s economic environment ( tax changes)
    Change in job market
    Inflation
    Changes in pattern of savings instruments and savings habits.
  • 7. Need for awareness
    Living beyond one’s means spells doom
    Financial problems come uninvited without notice
    Financial problems create tension
    Requires foresight, time & patience to prepare plan
    No one in family can be ignored as each needs money
    FP provides a direction, builds motivation , support.
  • 8. UNDERSTANDING FP
    Life insurance alone is the instrument available to take care of all aspects of FP.
    Saving , investing & spending are 3 important terms of FP
    Saving = Asset accumulation
    A short & long - term perspective
    Investing = Asset creation
    Making money out of money, focus on capital growth, a long-term perspective , creation of physical/ financial assets, investing depends on level of risk tolerance
  • 9. Contd…….
    Spending = Asset protection
    Spending is protecting our LIFESTYLES , lives & assets.
    We may spend more & save less , taking care of all expenses ( most cases) – financial failure
    Save more, spend less, not considering unexpected expenses. Not feasible when huge expenses occur & savings are depleted – financial dependency
    Save, invest, spend – savings ( unexpected expenses) & investments (long-term goals accompany each other) - financial independence
  • 10. BUT WHAT HAPPENS WHEN 3 Ds STRIKE ?
    HOW TO ENSURE PROTECTION & YET GET BENEFITS OF S-I-S ?
    MAY LEAD TO F FAILURE
  • 11. FP & LIFE INSURANCE
    Important to understand person’s objective in a long-term financial instrument like LI
    Value -creation main objective
    Spiritual value – peace of mind
    Emotional value - love for family
    Financial value - tax saving, capital creation
    LI instrument – takes care of s-i-s , leads to asset accumulation, creation & protection
    LI offers a complete financial solution
  • 12. Contd……
    Asset creation - opportunity to earn in ULIPS
    Asset protection – cover against 3Ds
    Asset accumulation – account grows with scope to reinvest further by recycling accumulated account.
    HENCE LI IS AN INTEGRATED FINANCIAL PLAN THAT WORKS IF SOMETHING HAPPENS & ALSO IF NOTHING HAPPENS.
    GUARANTEES LIFETIME INCOME TO FAMILY IF ONE DIES & LIFETIME INCOME TO ONE IF HE LIVES.
  • 13. APPROACHES TO FP
    Depends on individual - may be conservative (safety), enterprising ( take some risks), speculative
    ( take high risks for high returns ).
    Approaches vary due to given factors –
    Age/family – affects ability to take risks
    Responsibilities
    Financial strength
    Tax savings
    Temperament
    Specialised knowledge
    Insurance status
  • 14. BASIS OF FP - LIFE CYCLE NEEDS
    Need for FP persists throughout life
    Most people have at least one unsatisfied need at any time.
    Most people will have both financial protection and investment needs simultaneously throughout life
    Priorities of financial needs change with age.
    To appreciate how these changes come about financial planners use the Life Cycle Needs Guide.
  • 15. LIFE CYCLE OF INDIVIDUAL
    Childhood stage - Learner
    Young Unmarried stage – Earner
    Young Married stage - Partner
    Young Married with Children stage - Parent
    Married with older Children stage - Provider
    Post –family/ Pre-retirement stage – Empty Nester
    Retirement stage – Enjoyer
    3 phases of one’s life - birth & education (22 )
    Earning years(38) & retirement (20-30)
  • 16. Learner - costs of education
    High cost of private education plus inflation
    To achieve success, parents use life insurance as a FP tool.
    In case of demise of a parent, LI looks after education
  • 17. Earner stage
    Young , healthy, carefree, easy access to money, single young adults.
    Many may possess extensive funds but no specific savings/FP plan for emergency.
    Need for protecting new-found status & earning capacity
    Priorities list need to be topped by disability insurance to protect loss of income.
    May have o/s loans, high credit card balances
  • 18. Earner
    Generally in age group 25-30
    Youth is chewing gum ….it never ends
    Why forget the future while enjoying today , is the mantra.
    Could go for policies which mature at 55-60
    If no dependants, need not have LI, only risk cover/accident cover.
  • 19. Advantages of starting an early security program
    Provision for a guaranteed, immediate financial security ensured. Lower premiums charged at young age.
    Qualify for lifelong protection while insurable , regardless of later hazards that may be ventured through chosen life-style vocation or occupation.
    Start building cash reserves for emergencies.
    Final rewards are high due to compound interest schemes prevalent in LI plans
    Option to change policy-type with flexibility
  • 20. contd…..
    In case of early death, funds available can pay off debts & honour any bequests as per will.
    If policy commences at early age, higher pension values obtained
    Get satisfaction & peace of mind
    Life insurance needs low- should accumulate growth assets( home/stocks/mutual funds) aggressively due to high risk-taking ability now.
  • 21. Partner / Parent
    Nuclear family –breakdown of joint family.
    When children arrive & there is single earning spouse, require emergency fund for survivors through LI.
    In case of dual income, families buy less LI. View second income as insurance against first. Complacency rules.
    Need LI for both partners to maintain standard.
    Have young children.Has taken home loan.Starts investing in earnest. Should have adequate LI, asset protection & continue asset creation.Current needs minus existing assets – difference is LI
  • 22. Partner/Parent
    Age group 31-40 years
    Needs are many – rent, school fees, vacations….
    Now there are dependants
    If non-working spouse, buy term plans till 60 years -for protection, not investment
    If businessman, then your risk & growth comes from investing in own business.
    In asset-building, home buying is top priority
    Invest in children’s insurance plans
  • 23. Provider
    The middle years. People constantly making commitments, acquiring assets, incurring additional debts to fulfill dreams
    Higher education goal of children approaching, home loan nearly repaid, income peaking, investible surpluses high, financial protection for family, sufficient income against disability, emergency fund to meet exigencies.
    LI needs low as asset base builds up.Take term plans to cover shortfall in existing assets.
  • 24. Provider
    The maturing years - 41 to 50 years
    Persons could switch over from being employee to entrepreneur
    At this age risk cover important ( protection )
    You begin to get real about the possibility of being where your father is today ….70 plus enjoying golf & gardening
    LI needs to continue as long as dependents exist.
    If entrepreneur, your assets are your business - can sell assets in future if required after working
  • 25. Empty Nester
    The retirement countdown begins – 51 to 60 years
    Needs are to ensure healthcare, ensure additional income during retirement
    Children are independent, home loan repaid, no other debt, investible surpluses peak.
    Divert new surpluses to build retirement corpus, reduce portfolio risk.
    Maintain life cover as long as earning, increase health cover since premia increase with age
    Save as much as possible during these years.
  • 26. Empty nester
    Disposable income is high, rebalance investment portfolio and tone down aggressive investment
    Invest in pension plans if not done earlier
    JUST BEFORE RETIREMENT -
    Top up health insurance
    Clear off all debts prior to retirement
    Try to live in a smaller city/town
    Do not be covered by life insurance after 60 .
    Develop skills for engagement/income ( if reqd)
  • 27. Enjoyer
    The final phase -60 plus.
    Security & comfort top priority for all.
    Different people perceive retirement differently.
    Some look forward, some dread.
    Obstacles that prevent people from planning for their retirement are –
    Lack self-discipline to save sufficiently during earning years
    Investment & reinvestment a formidable challenge to most
    Few people posses expertise to provide constant liquidity that lasts till one lasts.
  • 28. Contd…..
    Health expenses replace work-related expenses.
    Creating cash flows & beating inflation top priority.
    Create adequate cash flows from safe investments & invest surpluses in instruments that comfortably beat inflation to prevent erosion of retirement capital.
    No life cover needed. Retirement corpus should fund needs.
  • 29. RECAP
    Basic objective of FP is to allow you to lead the life you want during old age comfortably without compromising on basic values
    Goal should be financial security to take care of all financial needs post-retirement
    How much money one needs for these goals that could be 2 /20/40 years away can be arrived at by FP so as to maintain same standard of living.
    LI is excellent instrument in case of RP
  • 30. THANK
    YOU !