One of the most common reasons cited for not doing proper financial planning “Is if I continue to earn as much as I do now, what is the big problem? And anyways my salary will only increase with experience and hence I will always have enough money at hand for unexpected expenses and regular living expenses.” It is only a matter of time before you come back to earth and realize that your productive workspan is limited and the kind of bucks you earn cannot be sustained on an exponentially increasing spree for long at the same level. In the new scenario of layoffs and overnight pink slips, to lay the onus completely on earning and not savings is a highly risky proposition. Once you start factoring all these, you would become sober to think and plan for your financial future. Welcome now to the wonderful world of financial planning. This document just serves as a foundation with some basic guidelines about financial planning.

To startwith, let us first define what is financial planning? This question triggers a snigger no doubt. After all don’t we know what financial planning is all about, to manage our expenses within our earnings and to put aside a little bit for a rainy day? True, that is the view taken by most of the people. However the reality is a little different from that.

Today in our country financial planning means only investing money in the tax saving instruments thanks to the plethora of tax exemptions and incentives available under various sections and subsections of the Income Tax Act. This has led to a situation where people invest money without really understanding the logic or the rationale behind the investments made. Further the guiding force in investment seems to be the ‘rebate’ they receive from the individual agents and advisors. The more the rebate an agent gives, the more smug you are in the belief that you have made an intelligent decision of choosing the right agent who has offered you more rebate. In the process what is not being realized is the fact that the financial future is getting compromised. We shall elaborate on this in later sections.

The right financial planning practice starts with asking ourselves a few questions. Questions which throw up a lot of surprising answers and which helps us in understanding our needs better. For example do you have enough cash resources to cover the expenses for atleast next two months? Seems like a simple question but in this era of pink slips a very relevant one. The right planning practice also begins with understanding the basics of various investment tools. So let us know of various options available; Insurance, Mutual funds, Pubic provident fund, Stocks and shares and Debt and money market instruments among others.

A good plan is one which takes the maximum advantage of various incentives offered by the income tax laws of the country. However, do understand that the tax incentives are just that, only incentives. If you can plan in such a way to get the maximum advantage of these incentives good. Else nothing is lost. The prudent investment decision made and the returns that accrue will more than offset the tax outgo. In any case the primary objective of a good financial plan is to maximize the wealth, not to beat the taxmen.

The investment philosophy and the requirements change according to the life cycle. Thus the investment philosophy of a person in his twenties would be far different than that of a person who is in his thirties, forties or fifties. Due to the improved living conditions and access to better medical facilities, the life expectancy of people is increasing. This has led to a situation where people will be spending approximately the same number of years in retirement what they have spent in their active working life. Thus it has become imperative to ensure that the golden years of the life are not spent worrying about financial hardships. A proper retirement planning, to a very large extent, will ensure this.

Saving for the higher education of one’s children counts as one of the most daunting financial objectives in one’s life. And even in the era of scholarships and cheap loans that have made overseas study eminently affordable, this is one responsibility that no parent will ever abdicate. In fact, it is not uncommon for parents to start saving, even at the birth of their children, for their higher education–or for their wedding. Can we plan for this to ensure that the most important objective doesn’t get derailed in the midway due to an unforeseen mishap? A roof on the head is perhaps one of the most coveted ambitions in anybody’s life. Today owning a house has become one of the easiest tasks thanks to the cheap credit and the tax incentive that is being doled out. Factor in all the hidden costs when choosing the home loan service provider and also cover the loan amount with term insurance. The good thing is there are home loan products, which come in-built with insurance cover.

Finally, please keep all the documentation regarding all your investments in a single and safe place and please keep someone near and dear in the know of your various investments, maturity dates, key instructions and other details which would help when you need these investments the most.

(The article was written by businessgyan editorial team with inputs from various financial planning consultants. Feedback can be mailed to This e-mail address is being protected from spam bots, you need JavaScript enabled to view it )\n This e-mail address is being protected from spam bots, you need JavaScript enabled to view it )"

Issue BG23 Feb03

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