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Showing posts with label Financial Planning. Show all posts
Showing posts with label Financial Planning. Show all posts

Friday, July 5, 2013

Why do you Need to Plan for Retirement?

Need to Plan for Retirement

Most of us know it is smart to save money for those big-ticket items we really want to buy a new television or car or home. Yet you may not realize that probably the most expensive thing you will ever buy in your lifetime is your retirement.

Perhaps you've never thought of "buying" your retirement. Yet that is exactly what you do when you put money into a retirement nest egg. You are paying today for the cost of your retirement tomorrow.

The cost of those future years is getting more expensive for most Indians, for two reasons. First, we live longer after we retire - with many of us spending 10, 20, even 30 years in retirement - and we are more active.

Second, you may have to shoulder a greater chunk of the cost of your retirement because fewer companies are providing traditional pension plans and are contributing less to those plans. Many retirement plans today, such as the PF. You may not have a retirement plan available at work or you may be self-employed. This puts the responsibility of choosing retirement investments squarely on your shoulders.

Unfortunately, only a little more than half of all workers are earning retirement benefits at work, and many are not familiar with the basics of investing. Many people mistakenly believe that Social Security will pay for all or most of their retirement needs. The fact is, since its inception, Social Security has provided a minimum foundation of protection. A comfortable retirement usually requires Social Security, pensions, personal savings and investments.

In short, paying for the retirement you truly desire is ultimately your responsibility. You must take charge. You are the architect of your financial future.

You may have more pressing financial needs and goals than "buying" something so far in the future. Or perhaps you've waited until close to retirement before starting to save. Yet you still may be able to afford to buy the kind of retirement you want. Whether you are 18 or 58, you can take steps toward a better, more secure future.

Preparing for Retirement when there's Little Time Left

What if retirement is just around the corner and you haven't saved enough? Here are some tips. Some are painful, but they'll help you toward your goal.

• It's never too late to start. It's only too late if you don't start at all.

• Sock it away. Pump everything you can into your tax-sheltered retirement plans and personal savings. Try to put away at least 20 percent of your income.

• Reduce expenses. Funnel the savings into your nest egg.

• Take a second job or work extra hours.

• Aim for higher returns. Don't invest in anything you are uncomfortable with, but see if you can't squeeze out better returns.

• Retire later. You may not need to work full time beyond your planned retirement age.

• Refine your goal. You may have to live a less expensive lifestyle in retirement.

• Make use of your home. Rent out a room or move to a less expensive home and save the profits.

• Sell assets that are not producing much income or growth, such as undeveloped land or a vacation home and invest in income-producing assets.

Friday, October 22, 2010

3 Basic Steps to Financial Planning

Step 1 - Put your finances in order

We spend more than half our lives working and saving, but hardly spend any time planning on how to put that hard-earned money to work more effectively. So, how do you plan your financial life?

Put your (financial) house in order

Financial planning starts with a review of your overall financial profile, and not at investing. Before rushing to build an investment portfolio, you need to address the following issues:

Insure your health, life and assets

Start by protecting your family’s current lifestyle against events/expenses beyond your control. Buy appropriate insurance policies for your medical expenses, life and other important assets.

Repay high-cost loans

Paying credit card bills on time can save you more money in interest costs than most of your investments could earn you. Ditto for borrowings that cost you more than 15% pa. So, put high-cost loans behind you, and only then start building your investment portfolio.

 Put money aside for emergencies

Deploy some money in short-term investments that can be encashed on demand to help you tide over unforeseen needs and emergencies.

Draw up a savings plan

Income - Expenditure = Savings

Do not leave this equation to chance – make a savings plan. Put away as much as you can, as regularly as you can, aim to save at least 15% of your take home annual income.


Step 2 – Prepare to invest

Investment planning is simpler than you think, and more rewarding than you would imagine.

Your age and investment size does not matter, nor do you have do be a money whiz – just do it NOW. So where do you start?

Identify your financial goals

What are your goals? What are you saving for – A house? Child's education/ marriage? New car? World tour? Retirement? Quantify this in terms of amount of money needed, and time horizons.

Understand your risk profile

Depending on our income and needs, we all have different capacity for risk. We also have a different risk tolerance, based on our individual psychological make-up. Understand your risk profile and plan your portfolio accordingly.


Plan your asset allocation

Returns should not be your primary objective; you could end up taking more risk than you are financially/ psychologically capable of. It helps seek expert advice and create a portfolio with the right spread across asset classes to minimise risk of incurring a loss.

Step 3 – Start investing

The only thing worse than investing late is not investing at all.

Use the power of compounding

Compounding is the best reason for starting early. The sooner you begin investing the better – every day that you are invested is a day that your money is working for you.

Invest as per your needs

If you know you will need cash next year (down payment for a house, child’s college fee etc), opt for a shorter term, low capital risk investment (such as liquid/ gilt/ money market funds, bank term deposits or top-rated company deposits/ fixed income investment options).

Similarly, invest money that you will not need for 3-5 years in the stock market.

Evaluate your investing skills

Finding the right money manager for your investments is important. You could manage your money yourself, use professional money managers, or invest through mutual funds.

Financial planning is not about financial expertise and hard work. All it needs is the right approach and discipline.

Wednesday, September 22, 2010

Financial Planning to Beat Inflation

What is Inflation?

We observe that the prices of all goods and services keep increasing. Take anything - sugar, petrol, vegetables, cost of postage - anything, you would see that its price has increased manifold over years.

This is Inflation that what we always keep hearing about. And it can have a disastrous impact on your savings and investments. Reason enough to understand it better?

Understanding Inflation

Inflation means reduction in the purchasing power of the currency. Simply put, it means that the same amount of currency would be able to get you less goods (and services) over time.

For example, today rice costs Rs. 20 per kg. After a year, its price goes up to Rs. 22 per kg. This means that its price has gone up by 10%, or that the inflation is 10% for rice.

This means that for Rs. 100, you can buy 5 kilos of rice today. But after a year, you would be able to buy only 4.5 kilos of rice for the same amount.

Thus, the purchasing power of Rs. 100 has reduced, or, generally speaking, the purchasing power of the currency has reduced. This is known as inflation.

(Note: In practice, inflation is derived from the price movements of a very large basket of goods and services. In the example, for simplicity's sake, we considered only Rice).

This means that the value of a Rupee today is not the same as its value at a later time. This brings us to another interesting concept.

Time Value of Money

Through the example, we saw that the value of the Rupee keeps decreasing over time. The value is highest today, and becomes less and less as time goes by. Although the unit (the Rupee) remains the same, its purchasing power decreases over time due to inflation. 

That is only reason why we transact using 500 Rs & 1000 Rs note today which was not available in old days. Coins not is use with smallest denominations like 5 paisa, 10 paisa, 20 paisa, 25 paisa shows that we could not buy any goods or services using them now a days. Infact 1paisa, 2 paisa coins were also used half of the century ago.

Therefore, you can not compare an amount today with an amount at a later date without considering the time.

Say you lend someone Rs. 1000 today, and he returns Rs. 1000 after a year. Are you at par? No - because the value of Rs. 1000 after a year is not the same as its value today due to inflation. If inflation is 5% for the year, actual purchase power of your money is Rs. 950 only. In such a case, you can invest the Rs. 1000 today at the rate of 7%, and can get Rs. 1070 after a year to beat inflation.

How Inflation and Time Value of Money impacts your finances?

The fact that inflation reduces the purchasing power of Rupees over time has very significant impact on your savings.

Suppose, a post graduate degree costs Rs. 2,00,000 today. You are planning for your daughter's education, and want to save for it today when she is 10 years old. She would need the money after around 11 years.

How much should you plan to have at that time?

Rs. 2,00,000? No! It is not enough to save that much, because this amount would have lost considerable purchasing power in all those years.

You would need to have a lot more at that time, because due to inflation, the same service (post graduate education) would cost a lot more at that time.

This can be achieved if you do proper financial planning by determining your goals, check your investment profile & risk tolerance and start saving & investing based on your goals to beat inflation over a period of time.

Thursday, September 9, 2010

Manage Your Finances

Managing your finances involves a lot more than just investing or worse – just saving. Though many say they are saving, if you look closely, you will find that every individual spends more than he/she saves. But there are ways which help you manage your money.

Don’t be ignorant when it comes to money:

Many people think that they cannot be affected by a crisis. This is not true. It is important that you understand your financial position and manage it in a manner that you can save and spend at the same time.

People think it’s difficult to understand financial jargon. You can always consult to a financial planner. He is the right source to go to, to help you get a better grip of your financial situation and how you can manage it better.

Take control:

As an individual, it is very important that you take personal control of your finances. If you feel that you are not spending your resources, take a look at your credit card bills. You will be able to see a distinct pattern as to where your money is going.

Set your goals and then plan:

Planning is important. But understanding the reason for the same is an important step to manage your money. Set your goals so that you know what you are working towards. If you feel that you have too many goals, bifurcate them into short term, medium term and long term goals with specific time period. This will help you make a plan as to how to reach those goals.

Educate your family members:

Education and information is the key. Preparation your finances is not just about an individual, it’s a family matter. Educate your family members about the course of action that will be taken to manage your finances better.

Be open to options:

You may think that to have effective management of your finances, you will have to cut corners and give up on the smaller joys of life. This is not true. Make a plan in such a manner where you don’t have to give up on your needs or face financial crisis. You can always diversified your investments so that you reap good returns over a period of time and still achieve your goals.


Wednesday, September 8, 2010

The Seven Steps to Financial Freedom

 A Get Rich Slowly but Surely Plan in Seven Steps

It's true that money can't buy happiness, but it certainly can help you live the life of your dreams!

You don't need fancy investment strategies to become financially secure, and you don't need to win the lottery either!

Here are seven simple steps you can take to help you reach your financial goal:

1. Make a Budget

Budgets are a necessary evil. They're the only practical way to get a grip on your spending so that you can make sure your money is used the way you want it.

Creating a budget generally requires three steps:

A. Identify how your money is spent today.

B. Evaluate that spending and set goals that take account of your financial objectives.

C. Track your ongoing spending to make sure it stays within those guidelines.

2. Pay Yourself

Save 5-10% of your paycheck to a separate account before you have a chance to spend it and you will soon realize a great wealth! Best of all this will grow your "nest-egg" without changing your lifestyle!

3. Get the Most for Your Money

Place the same amount of money each and every month into an investment, thus helping your fortune grow steadily over time.

4. Make Your Assets Work

Convert savings accounts into higher-paying money market accounts. Sell unneeded items and invest the proceeds. Invest in stocks rather than bonds and guaranteed income funds.

5. Know about Compound Interest

The secret of compound interest is time! Compounding simply works better over time. Start investing regularly in stocks keeping a long term of 5 to 20 years.

6. Pay Lower Taxes

The only two things certain in this life are death and taxes. Though we all must pay taxes, there is no patriotic reason to pay any more than our fair share. Be smartm check this possibility with a good accountant and do some research.

7. Build Your Plan

Build a financial time targeted investment plan and stick to it! Like most people, you know that you have to save and invest your money, but, without clearly defined goals and objectives, it's hard to know how fast to save, whether the return on your investment is high enough, and if the investment is safe enough to rely on to be there when you need it.

Knowing and understanding the desired outcome of your investment will help keep you motivated and focused.

Knowing and understanding your personal investment goals will help you determine what to seek from your investments.

Finally, before investing, ask yourself: Why do I need my money to grow & when do I want to use it?

Thursday, August 5, 2010

Investing for Last Years of our Lives

Thanks to healthier lifestyles and modern medicine, more of us are living longer!

But with longevity comes the need for more money to take us into the twilight years.

It's never too early to start saving for any stage of our lives, but when planning our financial futures, we do tend to forget about the last years of our lives and these are the years when we may need the most financial help.

Most of people don't like to think about getting old or sick, but by some estimates, the older population is growing twice as quickly as all other age groups.

One in four people will need some type of care in their older years. If you don't need to be in a hospital but you need care you might have to hire a skilled home care worker or go into a nursing home.

Generally, social security plans do not pay for this care. And since more people will be facing this challenge everyday, it's increasingly important for older adults to plan for their old age as soon as possible.

Financial planning is a vital concern to many senior citizens, both to ensure a comfortable and secure retirement, and, in many cases, to protect their wealth for the next generation.

The first step toward wise money management is learning all the details, in order to gain the very basic understanding of the different kinds of investments.

The next step for many is choosing a well trusted financial planner who will be able to provide professional and skillful financial and investing advice.

For those not yet retired, the next important step will be to be able to formulate and put into action an immediate retirement plan.

And for both working and retired persons, the final step is to learn details about specific kinds of investments, including mutual funds, stocks, bonds, insurance products & plans and all other kinds of assets.

In addition, it is essential to be alert to fraud and regulatory resources, in order to avoid financial criminals who prey upon the elderly.

Wednesday, July 14, 2010

Wealth Creation for Financial Freedom

Accumulating wealth—as distinct from just making a big income—is the key to your financial independence. It gives you control over assets, power to help shape the corporate and political landscape, and the ability to ensure a prosperous future for your children.

You want to create personal wealth, right? So does Rakesh.

Rakesh is 35 and works for a pharmaceutical company. He looked at his finances and realized that at the rate he was going, there wouldn’t be enough money to meet his family’s financial goals. So he chose to embark on a personal wealth-creation strategy. His first major step was to pick up a copy of this workbook for guidance. Rakesh began by learning the language of wealth creation. The first lesson was to understand the meaning of assets, liabilities and net worth.

A wealth-creating asset is a possession that generally increases in value or provides a return, such as:

• A savings account.
• A retirement plan.
• Stocks and bonds.
• A house.

Some possessions (like your car, big-screen TV, refrigerator and clothes) are assets, but they aren’t wealth-creating assets because they don’t earn money or rise in value. A new car drops in value the second it’s driven off the lot. Your car is a tool that takes you to work, but it’s not a wealth-creating asset.

A liability, also called debt, is money you owe, such as:

• A home mortgage.
• Credit card balances.
• A car loan.
• Hospital and other medical bills.
• Student loans.

Net worth is the difference between your assets (what you own) and your liabilities (what you owe). Your net worth is your wealth.

To calculate how much he is worth, Rakesh used the following formula:

Assets – Liabilities = Net Worth.

Note: The market value of a home is an asset; the mortgage, a liability.

Let’s say your house is worth Rs 20,00,000 but your mortgage is Rs 8,00,000. That means your equity in the home is Rs 12,00,000. (Equity contributes to your Net Worth)

Tuesday, June 22, 2010

Financial Planning

Understanding Financial Planning

Financial Planning is a critical use in ensuring your Long-Term Financial Security in all possible ways, Indeed it’s a roadmap to achieve Financial Freedom in different stages of your life like buying a Home / Car or planning a vacation abroad.

• Emergency Money Planning
• Child’s Education / Higher Education Planning
• Child’s Marriage Planning
• Retirement Planning
• Passing the Created Wealth to the next Generation.

There are some basic questions to answer for doing financial planning:

• Where you stand today? What is your current financial situation?
• Where do you want to get to? What is your vision of your future financial situation?
• Will you be able to get there? How do you plan to achieve your vision?

For a financial plan, you need to analyze your financial needs & goals here as mentioned above.

One should measure in terms of money that what resources one need to meet this stages of different goals and also the time period to achieve these goals.

Finally, one has to write an action plan so that to fulfill the Plan what products are useful to buy and savings to be done or increase/decrease in future too.

Your Life - Your Goals

What financial goals should you be thinking about?

Anything you want to do in your life can usually be quantified in terms of the money that you will need to spend on the goal you wish to fulfill. All goals have a financial value attached to them. For instance, if you want to buy a Car, you can easily calculate whether it will cost you Rs. 4 lacs or Rs. 12 lacs.

Some of the Financial Goals can be classified as :-

• Retirement Planning
• Education for children
• Children’s Marriage
• Emergency Fund Planning
• Buying a house or a car of your own etc.

Depending on person to person we all have priorities that which goal is having highest importance and for that what to start saving to meet those entire goal on time. Financial conditions should be built on solid foundations.

Once the basic needs are met one can start thinking about the goals for their changing lifestyle, this goals can be different from one to another as different people have different needs according to their lifestyle for them and their family so that its extremely personal.

Examples of this goals can be :

• Buying an LCD television
• Big Vacation Abroad
• Creating your own Gym

Financial Planning is a peace of mind


Someone has rightly said:- If you have dreams, you need a financial plan!

It depends on how much effort you willing to put in for your financial plan, like in terms of Expenses, Income & Asset, Liabilities too.