5 Key Parameters for a Complete Financial Plan
There are some individuals who are successful in their life in terms of their financial planning. Some would fail and struggle till their end of their retirement life. The key in successful financial planning is to consider all elements of financial plan. What are the key parameters in financial planning? Which are those important parameters one should consider to be successful in their financial planning?
5 Key Parameters for a Complete Financial Plan
1) Budgeting is first step
Budgeting is an estimation of income and expenses for a set of period. You might have salary income or business income and might be getting fixed income from bank FD, corporate FD, returns from mutual funds etc., Your expenses would include groceries, house rent, children education etc., Prepare budget for atleast say one year consisting of all incomes and expenses so that you would know the real picture of your financial status. Ideally you should be able to save anywhere between 30% to 50% of your total income. If your savings are negative or low savings, then you need to work on cutting down the expenses or check for ways and means for increasing income.
2) Consider Insurance as first step to safeguard your family in your absence
Another key parameter in financial plan is taking adequate life and health insurance. If an earning member is died, their family members would suffer for children education and for future expenses. If one is hospitalized due to illness or diagnosed with any major critical diseases, hospitalization and medical expenses can ruin financial life. Hence one should consider a life insurance and a good health insurance plan. Considering unique options in insurance plan would add value to the insurance plan. E.g. ICICI Pru Term insurance plan comes with death benefit, premium waiver benefit on disability, accidental death benefit, critical illness benefit etc. Considering such complete plans would help in getting maximum benefit from insurance plans.
3) Where are you investing?
You have saved money, that’s ok, but what about investments? Where are you investing your savings? If you are low risk taker, you can consider investing in simple bank FD or post office saving schemes which offers 8% approx returns. If you can take some risk, you can invest in large cap or balanced mutual funds where you can get 10% to 12% annualized returns. If you are high risk taker, you can invest in mid-cap/small cap mutual funds, corporate fixed deposits offering highest rates, IPO’s et., You can expect anywhere between 12% to 15% returns, however these are high risk.
4) How well are you planning your taxes?
Another important parameter in complete financial plan is, how well you are managing your taxes? If you are in high tax bracket and low risk taker, instead of investing in bank FD’s, you can look for tax free bonds which offers you highest post tax returns upto 7.5% per annum. How well are you exploring various tax saving options ? If you have option to claim LTA, are you utilizing this effectively? You can buy insurance with critical illness (like ICICI term insurance plan which I indicated above) so that you can benefit from both securing through insurance as well as saving income tax u/s 80C / 80D. If you have a plan to buy house, do you know, you can claim upto Rs 2 Lakhs as interest from housing loan from your total income? Do you know that you can claim unlimited interest benefit on second housing loan? Understanding various tax saving options would help you to manage your taxes well.
5) How well you are planning for your retirement?
Many of us have intention to accumulate corpus for retirement. How well are you planning to achieve your retirement kitty soon? You can choose several retirement options like mutual funds, pension plans, fixed deposits etc. to accumulate wealth, based on their risk appetite. Do you know that saving Rs 5,000 per month in the age of 30 till retirement would yield more returns than saving Rs 10,000 after 40 years of age? You can opt several insurance products including ULIP’s which would provide insurance as well as help you to grow your money safely.
Conclusion: When you want to plan your finances, prepare your complete financial plan. This way you are sure that you would achieve your financial freedom ahead of time instead of struggling till your retirement age.
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Key Parameters for a Complete Financial Plan
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