Financial planning in simple terms is a regular approach to meet one’s life financial goals. Financial planning is a process which provides you a systematic and planned way to reach these goals while avoiding any surprises . A financial plan acts as a guide throughout your life’s journey. In today’s fast-paced world, it’s easy to feel overwhelmed by financial pressures. Whether you’re saving for a down payment, planning for retirement, or simply trying to make ends meet, a solid financial plan can provide the clarity and confidence you need to achieve your goals. A Financial planner is the one who is a qualified investment professional who helps individuals meet their long-term financial objectives or goals. These professionals do their work by consulting with clients to analyse their goals, risk tolerance , and life stages , and identify suitable classes of investments for them. Why is Financial Planning Important? Increase saving : Though saving can be done without a financial plan , when you plan you get a good deal of insights on how you are saving and what expenses can you cut down. Achieve your goals: A financial plan provides a clear path to achieving your financial aspirations. Reduce stress: Knowing where your money is going can alleviate financial anxiety. Build wealth: Effective financial planning can help you grow your wealth over time. Prepare for the unexpected: A solid plan can help you weather financial storms. A solid financial planning is a very important instrument for personal finance, so lets look at what are the key steps. Key Steps to Financial Planning: Realistic Goals: Start by identifying your short-term, medium-term, and long-term financial goals and assigning them priorities. Make sure your goals are specific, measurable, achievable, relevant, and time-bound (SMART). Eg. How much would you need for child education and when would that be required. Create a Budget: Track your income and expenses. Identify areas where you can cut back. Make an elaborate sheet of all your income sources and expenses. You can use spreadsheet to look at them ( we have one created which we been using since last 10 years ) Manage Debt: Prioritize paying off high-interest debt. Consider debt consolidation options. Invest Wisely: Diversify your investments to reduce risk. Consider your risk tolerance and time horizon. Seek professional advice if needed. Protect Your Assets: Ensure you have adequate health, life, and property insurance. Create an emergency fund to cover unexpected expenses. Make Asset allocation The all the above culminates into your assets allocation What all assets and how much amount you can hold Review and Adjust: Regularly review your financial plan and make adjustments as needed As you grow your income, expenditure and lifestyle changes, you need to keep changing the plan along the way It’s not just limited to individuals, a lot of external factors also change. Seeking Professional Advice: While you can create a financial plan on your own, consider seeking advice from a qualified financial advisor. They can provide personalized guidance and help you make informed decisions. We will discuss about some duties and responsibilities of a financial planner Provide financial planning and investment advisory services Research and present investment strategies Develop and execute goals planning Implement risk management and tax planning strategies Help with estate planning Help to develop financial plan and execute the same with client Keep reviewing and make changes as and when required . In Conclusion: Think of financial planning as mapping out a journey to your desired financial future. This article delved into why creating such a plan is crucial, and provided practical steps. However, a plan remains just an idea until it’s put into action. The sooner you begin implementing your financial strategy, the simpler the process becomes, and your odds of reaching your objectives significantly improve. So, what’s holding you back? We trust you found this information valuable. If so, please consider sharing it with your network, so more people can be benefited . Should any aspect of our explanation require further clarification, please don’t hesitate to ask in the comments below or reach us . We’ll be happy to provide answers.
What does Term insurance not mean or what it is not ? Cash Value: Unlike whole life or universal life insurance, term insurance doesn’t build cash value over time. This means you can’t borrow against the policy or receive a cash payout if you surrender it before the end of the term. Maturity Benefit: If you outlive the term of your insurance policy, you won’t receive a lump sum payment at the end. Term insurance is designed to provide coverage for a specific period, and there’s no payout if you don’t need it. Investment Returns: Term insurance isn’t an investment vehicle. While it provides protection, it doesn’t offer any potential for growth or returns. Guaranteed Premiums: While some term insurance policies offer level premiums, others may increase over time. This means your premiums could go up as you get older, even if you maintain good health. Real Life Scenario : What happens in real life scenario is people are mis selling or they themselves think since the money they have paid is not being return its not a good financial planning instrument. So two most common plans are sold in the market. Endowment plans Are a type of life insurance policy that combines life insurance coverage with an investment component. This means that in addition to providing a death benefit to your beneficiaries if you die during the policy term, endowment plans also offer a maturity benefit if you outlive the policy term and provides guaranteed returns ULIP ( Unit-Linked Insurance plans) is a type of life insurance plan that combines life insurance coverage with an investment component. They provide an opportunity to participate in the market or bonds. Unlike traditional endowment plans, ULIPs offer more flexibility and potential for higher returns. But the question is why mis-selling happens? Higher Commission: Your agent/ Bank gets a higher payout for selling. Guaranteed returns : It’s easier for agents to sell something with a guaranteed word , so they don’t have to spend a lot of time explaining Pressure : Banks sell these plans through their employees , they have a lot of pressure to sell. Is it that bad at all lets see this from the case of Endowment plans from real life scenarios Case Study : Customer who was looking to buy insurance cover was approached by bank to with the following two proposition instead of term plan The customer was pitched by his regular bankers to invest in this plan Called HDFC Sanchay plus ( this is not just limited to HDFC, it is all ICICI, LIC, Max etc. whatever policy you buy it would be the same.) His banker was really persistent on him to buy this plan that he used to call him daily , putting all tactics for him to purchase . After so many pressure calls he had almost given in when i got in discussion with him and showed him the reality. So let’s study the plan. HDFC Sanchay Plus Current age : 30 Years Policy term : 20 Years Premium payment term : 10 years Premium amount 1st year : Rs 5,22,500/- Premium 2 nd year onwards : Rs 5,11,250/- SI :Rs 64,37,500/- to Rs 1,27,58,919/- Policy Year Single/ Annualized Premium Guaranteed Non Guaranteed Survival Benefits / Loyalty Additions Other benefits (if any) Maturity Benefit Death Benefit Min Guaranteed Surrender Value Special Surrender Value 1 522500 0 0 0 64,37,500 0 0 2 511250 0 0 0 64,37,500 3,09,000 3,09,000 3 511250 0 0 0 64,37,500 5,40,750 5,40,750 4 511250 0 0 0 64,37,500 10,30,000 10,30,000 5 511250 0 0 0 64,37,500 12,87,500 6,83,148 6 511250 0 0 0 64,37,500 15,45,000 8,95,482 7 511250 0 0 0 64,37,500 18,02,500 11,41,343 8 511250 0 0 0 69,23,763 32,35,879 15,59,667 9 511250 0 0 0 74,10,026 37,68,008 20,82,332 10 511250 0 0 0 78,96,289 50,72,637 27,28,108 11 0 0 0 0 83,82,552 57,33,516 31,99,868 12 0 0 0 0 88,68,815 58,79,395 37,36,072 13 0 0 0 0 93,55,078 60,25,273 43,42,778 14 0 0 0 0 98,41,341 61,71,152 50,30,514 15 0 0 0 0 1,03,27,604 63,17,031 58,08,267 16 0 0 0 0 1,08,13,867 64,62,910 66,87,510 17 0 0 0 0 1,13,00,130 66,08,789 76,78,686 18 0 0 0 0 1,17,86,393 67,54,668 87,95,972 19 0 0 0 0 1,22,72,656 69,00,547 1,00,54,714 20 -11729523 0 0 11729523 1,27,58,919 70,46,426 1,14,71,419 Returns 5.78% The policy seemed so attractive that he would make Rs 1,17,29,523/- in 20 Years. but he forgot he had invested almost Rs 50,00,000/ and got just double the invested. A simple IRR calculation shows he would earn 5.78% IRR on this investment. Lower than your FD returns. We could argue that it was meant for protection but let’s see how much would he have paid if we just took SI of Rs 1,30,00,000/- from day one for 20 years , which in this case is applicable in 20 years. The same company offers us Term insurance plan for SI – Rs 1,30,00,000/- Payment Term : 10 Years Policy term 20 : 20 years. Premium : Rs 23,464/- And now the funny part if we take this Policy Year Single/ Annualized Premium Guaranteed Non Guaranteed Survival Benefits / Loyalty Additions Other benefits (if any) Maturity Benefit Death Benefit Min Guaranteed Surrender Value Special Surrender Value 1 499036 0 0 0 64,37,500 0 0 2 487786 0 0 0 64,37,500 3,09,000 3,09,000 3 487786 0 0 0 64,37,500 5,40,750 5,40,750 4 487786 0 0 0 64,37,500 10,30,000 10,30,000 5 487786 0 0 0 64,37,500 12,87,500 6,83,148 6 487786 0 0 0 64,37,500 15,45,000 8,95,482 7 487786 0 0 0 64,37,500 18,02,500 11,41,343 8 487786 0 0 0 69,23,763 32,35,879 15,59,667 9 487786 0 0 0 74,10,026 37,68,008 20,82,332 10 487786 0 0 0 78,96,289 50,72,637 27,28,108 11 0 0 0 0 83,82,552 57,33,516 31,99,868 12 0 0 0 0 88,68,815 58,79,395 37,36,072 13 0 0 0 0 93,55,078 60,25,273 43,42,778 14 0 0 0 0 98,41,341 61,71,152 50,30,514 15 0 0 0 0 1,03,27,604 63,17,031 58,08,267 16 0
Understand the Concept in simplest way  A term insurance/ Life Insurance is a type of insurance which provides for financial cover during a set period chosen by the life insured. Why do we need term insurance ? Term insurance is a crucial financial tool that offers a safety net for you and your loved ones. Here are some key reasons why you might need it: Protection for Dependents: If you have dependents, such as children or a spouse, term insurance can provide financial support in the event of your untimely death. The death benefit can help cover expenses like mortgage payments, education costs, and living expenses. Debt Coverage: If you have significant debt, such as a mortgage or student loans, term insurance can help your family repay those debts. This can prevent financial strain and ensure a more comfortable future. Financial Planning: Term insurance can be a valuable component of your overall financial plan. It can help you protect your assets and ensure that your loved ones are financially secure, regardless of unforeseen circumstances. Affordability: Term insurance is generally more affordable than other types of life insurance, making it a good option for those on a budget. Flexibility: Term insurance offers flexibility in terms of coverage and duration. You can choose a policy that meets your specific needs and adjust it as your circumstances change. What does Term insurance not mean or what it is not ? Cash Value: Unlike whole life or universal life insurance, term insurance doesn’t build cash value over time. This means you can’t borrow against the policy or receive a cash payout if you surrender it before the end of the term. Maturity Benefit: If you outlive the term of your insurance policy, you won’t receive a lump sum payment at the end. Term insurance is designed to provide coverage for a specific period, and there’s no payout if you don’t need it. Investment Returns: Term insurance isn’t an investment vehicle. While it provides protection, it doesn’t offer any potential for growth or returns. Guaranteed Premiums: While some term insurance policies offer level premiums, others may increase over time. This means your premiums could go up as you get older, even if you maintain good health. How to Know Your Sum Insured ? By annual income method: Determine your annual income: This includes your salary, bonuses, and any other sources of income. Choose a multiplier: The multiplier is a number that determines the amount of coverage you need. Common multipliers range from 5 to 10 times your annual income. A higher multiplier provides more coverage, but also increases the premium. Calculate the sum insured: Multiply your annual income by the chosen multiplier. Human Life Value (HLV) method is another popular approach to calculating the sum insured in term insurance. This method focuses on the financial value that an individual brings to their family through their income. How HLV works: Estimate your remaining working years: Determine the number of years you expect to work before retirement. Calculate your average annual income: Estimate your average annual income over your remaining working years, considering potential salary increases and promotions. Factor in inflation: Adjust your average annual income for inflation to account for the rising cost of living over time. Determine the discount rate: This is the rate at which future income is discounted to its present value. It’s typically based on the rate of return you could achieve on your investments. Calculate the present value of your future income: Multiply your adjusted average annual income by the present value factor, which is calculated using the discount rate and the number of remaining working years. Conclusion : To consult for the best plans and understand the requirement of Term plan needs you can reach us : https://wa.me/message/LC5W5ZNTPSJ5L1)