Financial Planning is an activity the importance of which cannot be understated. We all know that. Unfortunately, we do not spend much time planning our finances.
One reason for this inactivity is that we overestimate the effort required for planning our finances. And that too probably many times over. On the contrary, financial planning is a relatively simple activity, which may not even require professional help!
What is financial planning?
Let's say you are salaried and just married. You already have a property, which in effect takes care of your most pressing need a place to stay. However, now you need to plan for two most important things your retirement, and your children's education (both eventualities) i.e. you need to draw up a financial plan, which will help you meet your monetary requirements when your children go to college and when you retire.
Seems a daunting task. But is it?
Let's plan for your future
Let's take the first goal planning for your retirement.
The most important thing to remember is that it is never too early to plan your retirement. The reason is pretty simple the power of compounding (we will tackle this issue is in a forthcoming article).
Once you have decided to plan for your retirement, a smart way to begin is by estimating what is the amount of income that you will require when you retire to sustain your present life style?
Assuming your monthly expenditure today is Rs 100 pm & inflation is likely to average 5% over the period. So, 30 years from now, when you retire, the corresponding monthly expenses would have ballooned to Rs 432. Once retired your expenses will probably reduce. Nevertheless we will keep the expenditure amount unchanged as the reduction in expenditure could be compensated by more travel and/or medical expenses.
Now we have a target and also the time frame in which we have to reach the same. This makes the process much simpler. Let's take a look at some of the major investment avenues available -
- Equity
- Fixed Income
- Pension / Life Insurance
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