FINANCIAL PLANNING – SECRET TO BECOME RICH..! PART-2

In the last session we discuss about what is financial planning why it is necessary.
  TAx planning
In this session we are going to discuss parts of the financial planning .
First thing first .. in the financial planning two words are most likely used with  expenses 
  1. Discretionary expenses 
  2. Non-discretionary  expenses      

What is a 'Discretionary Expense'

A discretionary expense is a cost that is not essential for the operation of a home or a business. For example, a business may allow employees to charge certain meal and entertainment costs to the company to promote goodwill with employees. In the home, discretionary expenses are most often defined as things that are "wants" rather than "needs."

What is a 'NON-Discretionary Expense'

They are the expenses is cost a essential for operations for the home and business.
Foe example, repayment of home loan installment,salary of employees,food and like that. They are the all mandatory expenses from that we make arrangement for every month.
Financial planning covers mainly six parts 
a. Contingency Planning
b .Insurance Planning
c. Tax Planning
d. Investment Planning
e .Retirement Planning
f. Estate Planning

What is contingency planning ?

 Contingency planning refers to setting aside funds for emergencies such
 as loss in business, loss of job or hospitalization.
Usually, six months’ expenses (non-discretionary) must be kept in savings
account or fixed deposits or liquid funds.
The contingency planning is a emergency funds available anytime you required so the thumb rule says the six month of your salary is kept aside for Non-discretionary purpose. Whether they are cash,Fixed deposit in bank or any other time of liquid saving .

Insurance Planning

Insurance planning involves determining the how much insurance cover is
required by the client to cover the risk associated such as death, medical
emergencies, and loss of assets.
Following requirement kept in mind taking insurance cover 
  1. How much of health insurance is required to meet a medical emergency like an accident or disease?
  2. Which type of accident policy and critical illness policy will suit us?
  3. Is it necessary to insure household goods?
The thumb rule for having life insurance cover is 10 to 12 times of annual income.
LIFE INSURANCE AMOUNT = Annual income  X 12

Tax Planning

Tax planning includes planning of the following to gain maximum benefit of
prevailing tax laws:
• Income
• Expenses
• Investments
Things kept in mind..
1. Are you making maximum use of all available tax exemptions/deductions?
2. What are the changes in tax laws that may affect cash flows, investments, and savings?
3.What are the steps for the year-end tax saving and do strategic tax planning?
{Note:- A separate article will be publish in upcoming week about tax planning , exemptions and strategies}

 Retirement Planning

Retirement planning is finding out how much of corpus (money) is required to fund
the expenses during the retirement years and ways to build that corpus in
the pre-retirement period.
It deals with the utilization of the corpus accumulated during the
retirement years.
Things kept in mind..
1.How much money you required after your retirement to acquire same life style you are living now.
2. How will inflation affect the sustainability of retirement corpus in post retirement years?

Investment Planning

The most important aspect of financial planning is Investment planning. If the Investment planning goes well you become rich in desire time .
Investment planning determines the maximum investment and asset
allocation strategies for the oyou based on:
• Time
• Risk profile
• Financial goals

Before recommending an investment strategy to you for achieving financial goals, a financial planner must analyze the following:
• Various asset classes
• Risks and return characteristics of the assets
• Products available under each asset class
example,
Stocks,Bonds,Real estate,Cash,Commodities

Estate Planning

The transfer of assets from one generation to another also known as estate
planning.
Estate planning is necessary for every individual, irrespective of the size of his or her
wealth. It is also called as succession planning.

In the next article .. What is mean by asset and what are the asset classes .. keep reading

Comments

Post a Comment

Popular posts from this blog

Different rates (Monitory policy) Repo, Reverse Repo, Bank Rate, Call Rate, CRR & SLR

Repo (Repurchase) Rate Repo rate is the rate at which banks borrow funds from the RBI to meet the gap between the demand they are facing for money (loans) and how much they have on hand to lend. If the RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate. Reverse Repo Rate This is the exact opposite of repo rate. The rate at which RBI borrows money from the banks (or banks lend money to the RBI) is termed the reverse repo rate. The RBI uses this tool when it feels there is too much money floating in the banking system If the reverse repo rate is increased, it means the RBI will borrow money from the bank and offer them a lucrative rate of interest. As a result, banks would prefer to keep their money with the RBI (which is absolutely risk free) instead of lending it out (this option comes with a certain amount of risk) Consequently, bank
Read more

Monetary Policy - Meaning, Effect on economy & Objectives

Image
     Monetary Policy Generally we read RBI announces Monetary Policy or some changes happened in monetary policy. So what is Monetary policy & how it effects our day to day life..!                     Monetary policy is how  central banks  manage  liquidity  to create economic growth. Liquidity is how much there is in the  money supply . That includes credit, cash, checks and money market  mutual funds . The most important of these is credit. It includes loans, bonds and mortgages.  RBI Reserve Bank of India. Every country has its own Central bank(Reserve or Monetary bank). Meaning of Monetary Policy The term monetary policy is also known as the 'credit policy' or called 'RBI's money management policy' in India. How much should be the supply of money in the economy? How much should be the ratio of interest? How much should be the viability of money? etc. Such questions are considered in the monetary policy. From the name it
Read more