fundamental of personal financial planning

28
Personal Financial Planning

Upload: dhanashri-academy

Post on 22-Jul-2016

219 views

Category:

Documents


0 download

DESCRIPTION

Personal financial planning is guidance by a licensed financial professional on the financial decisions faced by individuals.

TRANSCRIPT

Page 1: Fundamental of Personal Financial Planning

Personal Financial Planning

Page 2: Fundamental of Personal Financial Planning
Page 3: Fundamental of Personal Financial Planning

Why invest?Most of us in private job with no job

securityInflation rate doesn’t match the increment

rateTo have regular income after retirementTaking care of children’s needsInvestments must, hence, be foremost in

the order of priority barring any financial emergency

Page 4: Fundamental of Personal Financial Planning

Understanding cash flowPreparing a Cash Flow statement of income

and expensesHelps to focus or curtail unwanted

expenses“The secret to getting rich is to pay

yourself first (i.e., invest for your future), before you pay others (utilities, shops, etc)” – Kiyosaki (author of Rich Dad Poor Dad)

Page 5: Fundamental of Personal Financial Planning

Example of a cash flow statement

Total (savings) +Rs 10,000.00

Page 6: Fundamental of Personal Financial Planning

Where to Invest?Different avenues of investment

Stocks, mutual funds, government bonds, post office schemes, bank fixed deposits, commodities, gold, real estate, art, etc.

Page 7: Fundamental of Personal Financial Planning

Inflation Inflation is the rate at which the cost of goods and

services rises As inflation goes up, purchasing power decreases

Three years ago, you could have bought a three bedroom apartment in a premium suburb of Mumbai for Rs 75 lakh; today, the same amount will probably get you a one bedroom apartment in the same locality

Inflation reduces the value of money

Page 8: Fundamental of Personal Financial Planning

Impact of Inflation on financial goalsOver the years, you have to spend more in

order to maintain your standard of livingA management course that costs Rs 15 lakh

today will cost around Rs 41 lakh (at 7 per cent inflation), 15 years hence when your child is ready for it!

Page 9: Fundamental of Personal Financial Planning

Real returnTo fight inflation, invest in a product which

gives not just a higher rate of interest than inflation, but also leaves with a substantial amount that enables to meet the goals

Real return = stated return – InflationInvesting in an investment product provides 10%

return then actual return is 3% (10 – 7)If we consider 30% tax on return then the return

is almost nilConsider investing in equities, real estate and

commodities which are insulated from inflation

Page 10: Fundamental of Personal Financial Planning

Accelerate earnings: The concept of reinvestment Are you investing the interest earned?

The simple act of reinvesting the interest earned means you earn interest on the interest and make more money

Suppose you invested a sum of Rs 2 lakh in the Post Office Monthly Income Scheme (MIS) @ 8 per cent per annum. Every month, a sum of Rs 1,333 will be deposited into your savings account, for a period of 6 years. “Where should i invest such a small amount?”, you may ask. Well, the Department of Posts has a Recurring Deposit (RD) scheme, where you can invest as little as Rs 10 each month @ 8 per cent per annum. Your MIS interest over 5 years would be Rs 80,000. Reinvesting would, hence, earn you an additional interest of 8 per cent on the Rs 80,000, without much effort. 

Page 11: Fundamental of Personal Financial Planning

Accelerate earnings: The concept of reinvestment The following table demonstrates the value of Rs 10,000

invested at 7 per cent over a period of 35 years, assuming that the interest is reinvested.

Page 12: Fundamental of Personal Financial Planning

Compounding “Compounding the greatest mathematical discovery ever” –

Albert Einstein Reinvest your income from interest on investments, your

capital or principal that is invested goes up Another factor that influences compounding is the frequency

of compounding

Compounding is such a powerful financial tool that if you invest and reinvest your savings and profits regularly, your investment portfolio will steadily outgrow your salary! 

Page 13: Fundamental of Personal Financial Planning

Financial PlanningFinancial planning is the process of

developing a personal roadmap for your financial well being

The output of the financial planning process is a personal financial plan that tells you how to use your money to achieve your goals, keeping in mind inflation, real returns, and taxes

Process of systematically planning your finances towards achieving your short-term and long-term life goals

Page 14: Fundamental of Personal Financial Planning

BenefitsHelps monitor cash flows and reduces unnecessary

expenditureEnables maintenance of an optimum balance between

income and expensesHelps boost savings and create wealthHelps reduce tax liabilityMaximizes returns from investmentsCreates wealth and ensures better wealth management to

achieve life goalsFinancially secures retirement lifeReviews insurance needs and therefore also ensures that

dependents are financially secure in the unfortunate event of death or disability

Lastly, it also ensures that a will is made

Page 15: Fundamental of Personal Financial Planning

Financial Planning ProcessIdentify your current financial situationIdentify your goals Identify financial gapsPrepare your personal financial planImplement your financial plan Periodically review your plan

Page 16: Fundamental of Personal Financial Planning

Tips for Financial Planning Start now. Even if you are in your mid thirties or forties,

it’s better to start now than dawdle for another five years. Every day counts

Be honest with yourself. Seek help when needed. Set sensible, measurable goals for yourself. Be realistic

in your expectations of the results of financial planning Review your plan and financial situation periodically and

adjust as needed Always review the performance of your investments; pull

out if needed and reinvest the money elsewhere. Be hands-on. It’s your money and no one else will do

your work for you

Page 17: Fundamental of Personal Financial Planning

Types of InvestmentStocksMutual fundsGovernment bondsPost office schemesPublic Provident FundBank fixed depositsCompany fixed depositsCommoditiesGoldReal estateArt

Why Insurance is not categorized as Investment?

Page 18: Fundamental of Personal Financial Planning

StocksRisk

HighReturns

HighTax impact

Capital gains tax will be calculated based on your gain

RequirementsDemat account to be opened

Page 19: Fundamental of Personal Financial Planning

Mutual FundsRisk

High to Low based on the type of funds chosen

ReturnsMedium

Tax impactRequirements

KYC process to be followedInvestment type

Fixed amount more than Rs. 1000 or SIP

Page 20: Fundamental of Personal Financial Planning

Government BondsRisk

LowReturns

LowTax impact

Tax free based on type of bondsRequirements

Demat account or buy in paper formInvestment type

Fixed amount more than Rs. 5000 as one time investment with specific period

Page 21: Fundamental of Personal Financial Planning

Post Office Savings Scheme (POSS)Risk

NilReturns

LowTax impact

Interest is taxableRequirements

NoneInvestment type

National Savings Certificates (NSC), National Savings Scheme (NSS), Kisan Vikas Patra, Monthly Income Scheme and Recurring Deposit Scheme

Page 22: Fundamental of Personal Financial Planning

Public Provident Fund (PPF)Risk

Nil but poor liquidityReturns

MediumTax impact

Tax freeRequirements

Should be opened on individual’s nameMaximum savings can’t exceed 70000 per yearCan remit in a single installment or in max of 12

installmentsCan avail loanCan liquidate only after 15 years

Page 23: Fundamental of Personal Financial Planning

Bank FDsRisk

LowReturns

MediumTax impact

Interest is taxableInterest rate will vary based on RBI’s

monetary policy

Page 24: Fundamental of Personal Financial Planning

Company FDsRisk

MediumReturns

MediumTax impact

Interest is taxableInterest rate is high when compared with

Banks but risk is highFixed term

Page 25: Fundamental of Personal Financial Planning

InsuranceProvides financial protection to dependantsDoesn’t make sense if there are no dependantsFinalizing Life Cover

Life cover should be 10 times your annual incomeConsider other debts, pre-existing medical complication, etc.

Fund performanceIn case of ULIP, evaluate the performance of the company in

the past yearsTypes of Insurance Products

Term InsuranceEndowment Insurance Plans ULIPPension PlansMoney-Back Plan

Page 26: Fundamental of Personal Financial Planning

Best Practices in investingDiversify your portfolioConstantly monitor your investment and try

to correct bad performing assetsUse online portfolio tools to have

consolidated view of your investmentsDon’t save what is left after spending but

spend what is left after savingAdd nominee in all your investmentsConstantly review your financial goals with

the investments you have made

Page 27: Fundamental of Personal Financial Planning

Click Here ForFinancial Advisor Mumbai

Page 28: Fundamental of Personal Financial Planning

Thank YouFor More InformationVisit Our Website ….

WWW.DHANASHRIACADEMY.COM