Getting Your Financial Plan In Place

A comprehensive financial plan is needed to address various life goals of individuals by channelising assets and investments towards achieving them. There are some important features of financial planning to be covered while constructing this personal financial plan.

Emergency fund

To address any non-medical contingencies like loss of job or getting fractured limbs, which incapacitates you, it is prudent to park six months of home expenses towards meeting this emergency in a liquid scheme which may be available to you within 24 hours of medical urgency. Karan Gupta, Wealth Manager, Sykes and Ray Equities, says that many fund houses have an instant redemption option where your bank is credited in less than 30 seconds but only put to Rs 50,000 per fund house.

Insurance planning

Life insurance: An earning member of a family must be sufficiently covered with a pure term policy to cover the risk of loss of income to his dependents in his absence. There is no insurance needed if the individual does not have any dependents. “Furthermore, Unit Linked Investment Plan (ULIP), endowment and money back plans should be avoided since they are not only bad insurance plans but also bad investments,” Gupta said.

Medical Insurance: A family floater is recommended where there is a sole earning member and most policies cover up to four children till the age of 25 years. Gupta added that if the spouse is also a working member it is advisable to get separate policies for the tax benefit of Rs 25,000 per annum under section 80D of the Income Tax Act, 1961.

Retirement Planning

It is advisable to build a big enough corpus to meet post retirement expenses for addressing the goal of a comfortable retirement. “To meet this corpus it is important to account for an inflation adjusted current household monthly expense at the time of retirement and till the time of your life expectancy,” he said.

Extinguishing Debt

According to Karan Gupta of Sykes and Ray Equities it is important not to get stuck in a debt trap by spending more than one is earning. Thus it is recommended not to take personal loans. Car loans should not be taken for more than three years or avoid totally if possible. “Home loan is the loan advisable as there is a dual benefit of taxable deduction up to Rs 200,000 under section 24B on the interest component and Rs 150,000 under section 80C on the principal,” he said. Not many are aware, that if the property is in a joint name, both together can claim a taxable deduction of Rs 700,000 per year.

Investment Planning

It is important to chalk your personal life goals so that investments from monthly disposable income can be linked towards them. Based on the time horizon of your goals, appropriate schemes can be selected.

Estate Planning

A basic will must be drafted and registered as soon as you are 35 years and not wait for later. It does not cost must to do the same, but not having one could easily drain a family’s time and resources. You should be well in place after getting the above mentioned points of financial planning in order.