A little Planning can make a lot happen

Financial planning is a step-by-step approach to organise the money required to meet your life goals. Of course not all goals in life require money, so in financial planning we are talking about those that do. Essentially, it is tool to help you manage your income, expenses and investments to fund these life goals. A financial plan is a document containing your current financial situation, the likely future cost of your goals and the strategy, the broad plan to achieve those goals.

Financial planning helps you determine your short and long-term financial goals and create a balanced plan to meet those goals. Financial planning helps you understand your goals better, why you need them, prioritize them and even eliminate those that you realize are not really important. A good financial plan enables you to utilize and grow your available financial resources for the things that matter to you in the best possible way and achieve your goals.

A financial plan establishes goals, creates a realistic strategy to reach them, and tracks progress toward success.

The benefits of having a financial plan include:-

• Enables optimum utilization of available money
• Motivates a disciplined approach to spending and saving
• Preparedness for Future
• Helps plan for investments
• Leads to better standard of living

Financial goals are savings, investment or spending targets you want to achieve that enable you to reach your life goals. Some of your life goals are in the future and may require significant money. These require you to save some money i.e. your saving goal and invest it so as to grow it safely but fast enough to meet the cost at a future date i.e. your Investment goals.

Retirement planning is a multistep process that evolves over time. To have a comfortable, secure and relaxed retirement, a financial cushion is important to be built to fund it all. This is so important that saving for retirement in the form of contribution to your provident fund is compulsory in salaried jobs and deducted from your total salary and the rest is available to you. However, this may not be sufficient.

The key steps involved in planning for your retirement are:

1. Determining your Time Horizon for Retirement
2. Determine Post-Retirement Spending Needs
3. Estimating the corpus required to fund the entire post retirement costs
4. Assess Investment Goals & your Risk Tolerance
5. Calculate Investment Returns (after tax) based on all three steps above
6. Taking adequate Life and health insurance cover

Estimating the post retirement expenses correctly is important in retirement planning. For most people retiring usually means after attaining the usual retirement age around 60 years. Usually by this time you are an empty nest because your children would have grown up and become financially independent. This makes it easy to estimate your expense post retirement which is usually the expenses of your spouse/partner and yourself.

So take your current expenses and remove those that you are not going to incur post retirement, usually bring up your children expenses, travelling to work etc. This will increase at the rate of inflation over the time period till you retire.

You would need to plan for other big ticket goals like children higher education and marriage, and other expenses separately.

Early retirement requires you to estimate your expenses from the time of your intended retirement. Some of these expenses will be incurred only for a few years after which your expenses will become the same as a regular retirement. One way to handle this is to calculate the early retirement corpus in two parts

1. For the regular retirement expenses but from the early date
2. For the others expenses which would be normally met from your regular income e.g. children school education, vacation with children etc. This can be planned for as a separate goal.

You would need to plan for other big ticket goals like children higher education and marriage, and other expenses separately just like regular retirement.

As part of your financial plan you will know how much you need to save and how to invest this savings in debt and equity. If you do not have adequate savings currently, review your plan and see if you can drop something for now or reduce your spend on something. Even if the saving required is higher than your current saving check if you can increase you’re saving every year and catch up. If this seems possible then you have a plan you can execute. You will need to ensure you meet your saving targets by keeping your expenses under control (usually means enrolling your spouse/partner in the plan). However, do not aim to earn very high returns on your investments to make up for the saving shortfall as it is not something most investors can execute and sustain.

Your financial plan will tell you the investment you need to make in debt (fixed income assets like FD, Debt MF etc.) and equity. However, you need to check if this matches with the asset allocation recommended by your risk profile. Usually equity allocation will be 40% to 60% and if the plan suggests a higher allocation to equity you may need to reduce the same. It is best to seek advice from a SEBI registered Investment Adviser.

Here are a few guidelines to ensure success:

Debt related investments: To avoid any uncertainty and rude surprises ensure you invest the debt portion in very safe assets e.g. FD in the best/largest bank even if the interest rates are not the highest. This will give you stability and security at a portfolio level, enough to handle the volatility of your equity investments

Equity investments: For the equity portion you would require expert help and guidance as it is more complicated and dynamic. Make sure you can trust the source of advice and its best to use one that is transparent and without conflict of interest i.e. they charge fees to you but don’t earn any commissions and brokerage from your investments. This ensures you get advice that is 100% in your interest. Use a SEBI Registered Investment Adviser if your current surplus is already large.

Invest in high quality company stocks and look for reasonable prices for your direct stock portfolio. Complement this with safe mutual funds. Use Automation like having an SIP to ensure your monthly investments happen without fail.

It is said that plans are nothing, planning is everything. Certain events and your own priorities can significantly alter your financial plan. Make sure that you update and adjust your financial plan accordingly. It therefore helps to use a Financial Planning Tool rather than be completely dependent on a person. This is very much possible today as there are good and simple to use tools available.

First it provides you with an excellent tool to create your own financial plan. It is simple to use as you can see from this below video. And it is available for FREE. If you need help get in touch with us.

Once you have a plan you will need to make the right investments especially in equity and then manage it over time and the market movements that are always present. Over the years, since 2009, Moneworks4me has provided unmatched transparency, great quality and unbiased research, to customers and users. Moneyworks4me has investment solutions that will suit your portfolio size and your needs.