Financial Security and Planning ....

Hello 

It has been a few days now since I wrote my last blog.

This is because God has given me another opportunity to share my real life experiences with my learned readers and I will be extremely happy if I can help a few people in securing  their financial needs.

A few days back I received a call from a very reputed organisation in India to work with them as their Financial Adviser which I accepted. I have undergone the formal training and also cleared a mandatory  examination conducted by a government institution. I am now a licensed Financial Adviser and hope to be of service to people to the best of my ability.

And this is what has led to slight delay in posting this blog of mine.

So toady I would like to share my experiences on financial security and planning.

The best way to define financial security is that it is the peace of mind we feel when we are not worried about our income being enough to meet our expenses. It also means that we have enough money saved to cover emergencies and our future financial goals.

It is the economic security, the condition of having the resources to support a standard of living now and in the foreseeable future.

Financial planning is a process to identify our goals; assets net worth; estimating future financial needs; and working towards meeting those needs. Goals are short term ( buying a TV, family vacation etc) , medium term (buying a car, house etc ) and long term( Children's education, their marriage,post retirement needs etc).

* Economic life cycle - It has 3 phases :

- Student phase : This is pre job phase where one is getting ready for earning phase.

- Working phase : This phase starts around 20 to 25 years of age and lasts for 35 to 40 years.

- Retirement phase : This phase is one where one has stopped working

* Individual life cycle - 

- Learner, till the age of 25 : This is the learning phase of an individual

- Earner, 25 onwards : This is the phase when one starts earning

- Partner, 28 to 30 years : This is the phase when one gets married

- Parent, 30 to 35 years : This is the phase when one moves towards parenting

- Provider, 35 to 55 years : This is the phase when parents have to fulfill children's needs

- Empty Nester, 55 to 65 years : This is the phase when children get married

- Retirement, 60 years onwards : This is the phase when one gets retired and there is no regular source of income. Health also starts deteriorating.

* Individual needs 

- Enabling future transactions - making provision for future transactions such as education, marriage etc.

- Meeting contingencies - keeping money for unforeseen events like unemployment, hospitalisatiom, death etc.

- Wealth accumulation - this is done for increasing value of money

The basics of financial planning is already understood by all of us but what really happens is that most of us have our savings and investments here and there which needs to be structured scientifically to give it the correct shape.

The following needs to be understood :

1. Start saving for your retirement the day you start earning:

It was my good fortune that I met someone way back in the year 1979 when I started earning who explained to me financial planning with major thrust on requirement at different stages of life and retirement needs. I was able to understand it and followed it throughout my professional career.

In fact I followed the principle of saving 30% of my earning on a consistent basis from the very beginning. Subsequently, I learnt that percentage savings should be equal to your age which means that if you are 40 years old, you save 40%, for 50 years 50% and so on and so forth. It needs lot of determination and nothing short of taking self pledge to achieve it but it pays rich dividends in the end.

2. Save for a rainy day

This can be an interesting goal such as our dream car, vacation, new furniture, renovation of house, a new house, marriage, children's education etc. We should save regularly in suitable funds or plans so that we are always ready to meet the requirement rather than being forced to shelve huge some of money on due dates from our bank balance.

3. Be prepared for an emergency

We generally like to think  that nothing bad will happen to us but it is always better to be ready for any eventuality. This will safeguard the lives of our families if they are partially or fully dependent upon us. Even the best conceived plans can go awry by the requirement of an unforeseen expenditure.

Insurance is the basic need of every individual so that our lives are protected along with long term savings. This can be broadly classified as 

   a.  Life insurance

   b. Health insurance

   c. Vehicle insurance

though there are other insurance requirement also in corporate or business or any other work field.
Insurance refers to protection against an event that might happen whereas Assurance refers to protection against an event that will happen.

   d. Emergency fund is the one which allows us to meet our financial commitments for any unforeseen situation.

Before I end let me also remind you about a few more valuable considerations :

1. Life expectancy is going up and many of us would be living close to 85 to 90 years in next 2 to 3 decades

2. With disintegration of joint family and resultant modern day nucleus family, more and more people are forced to work post retirement

3. Inflation is something which we all understand and does not need any explanation here.

Hence financial planning is the need of the hour and sooner we understand and implement for ourselves, better for the mankind.


Gratitude 


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