“Thodi si tu lift karade
Bangla motor car dila de
Ek nahin do char dila de ”
What is financial planning ?
Making funds available from one’s current
resources to meet future needs
Entire gamut of FP explained by RETIReS
Core of FP
“If you want to know what God thinks of
money, just look at the people he gave it to ”
No sane man would like loose out his money
People like to derive maximum utility from use
When it comes to savings & investment, we
want our money to give us best returns
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
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
FACTORS DETERMINING FP
Country’s economic environment ( tax changes)
Change in job market
Changes in pattern of savings instruments and
Need for awareness
Living beyond one’s means spells doom
Financial problems come uninvited without
Financial problems create tension
Requires foresight, time & patience to prepare
No one in family can be ignored as each needs
FP provides a direction, builds motivation ,
Life insurance alone is the instrument available to
take care of all aspects of FP.
Saving , investing & spending are 3 important terms
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
Spending = Asset protection
Spending is protecting our LIFESTYLES , lives &
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
BUT WHAT HAPPENS
WHEN 3 Ds STRIKE ?
HOW TO ENSURE
PROTECTION & YET GET
BENEFITS OF S-I-S ?
MAY LEAD TO F FAILURE
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
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.
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
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
Priorities of financial needs change with age.
To appreciate how these changes come about
financial planners use the Life Cycle Needs Guide.
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)
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
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
Priorities list need to be topped by disability
insurance to protect loss of income.
May have o/s loans, high credit card balances
Generally in age group 25-30
Youth is chewing gum ….it never ends
Why forget the future while enjoying today , is
Could go for policies which mature at 55-60
If no dependants, need not have LI, only risk
Advantages of starting an early
Provision for a guaranteed, immediate financial
security ensured. Lower premiums charged at
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
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
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.
Partner / Parent
Nuclear family –breakdown of joint family.
When children arrive & there is single earning
spouse, require emergency fund for survivors
In case of dual income, families buy less LI. View
second income as insurance against first. Complacency
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
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
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.
The maturing years - 41 to 50 years
Persons could switch over from being employee
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
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.
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)
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
Investment & reinvestment a formidable challenge to
Few people posses expertise to provide constant
liquidity that lasts till one lasts.
Health expenses replace work-related expenses.
Creating cash flows & beating inflation top
Create adequate cash flows from safe investments
& invest surpluses in instruments that comfortably
beat inflation to prevent erosion of retirement
No life cover needed. Retirement corpus should
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