Thumb Rules of Financial planning

Thumb Rules of Financial planning:

1. 30 % of your income must be used for monthly living expenses.

2. 30% of your income must be used for Liabilities repayments, if any..

3. 30% of your income must be SAVED and INVESTED for your future LIVING.

4. 10% of your income must be spared for entertainments, vacations

5. 6 months expenses must be available for emergency fund (should be invested in LIQUID FUND, FD Etc)

6. Home loan must be registered and apply on both husband and wife name. (Both can get benefits on Home loan Tax benefits)

7. Buying second house for investment is not advisable ( Survey reports - it will fetch you only around 3% return)

8. After 45 years of age, not supposed to enter into any BIG LIABILITIES (Higher education of children and wedding of children will happen around 45 to 50 only, so plan now for the same.)

9. Have joint account @ Bank savings account.

10. Property must be registered on both Husband and wife name. (As per legal act – after husband first legal heir is wife, after wife it will go to children only)

11. Regular check on Nominations at all financial instruments. if not nominated, do it now..

12. Only in insurance policy, Claims payable to Nominee. In other financial instruments legal heirs certificate is must to get back the settlement

13. Must have Term Insurance to financially secure future of your dependants.. Conventional Insurance products can serve as Debt oriented investments and provide assured returns in the present falling interest regime with Tax benefits.

14. Don’t take any financial investment decisions EMOTIONALLY,  and also Avoid last minute tax saving investment decisions, plan well in advance..

15. MEDICLAIM is must (in spite of Group mediclaim coverage given at office) (After retirement there is no mediclaim coverage, after 50-55 years of age, it's very tough and costly to enter into mediclaim)

16. For your jewelry LOCKER, Only one lakh is payable by bank, if theft or fire happen at bank. Provided insurance done.

17. Like same way Government guaranteed only one lakh for your FD also. (Fixed deposits with Banks upto Rs. 1 lakh only are backed by deposit insurance)

18. Must know all Tax implications. You cannot avoid paying tax. But you can minimize by way of tax planning and investments..

19. All financial documents must be kept safely and keep family members informed of the same..

20. Financial investments must be followed through personal financial advisor..

21. Review your portfolio at every six month..

These are general suggestions, personal Finance and investment decisions depends upon case to case basis.
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Importance of credit score in improving chances of getting a loan

Many Financial Experts share  several tips on how to improve one's credit score and brighten prospects of getting a bank loan. Originally propagated by credit information companies like Credit Information Bureau (India) Ltd (Cibil), Experian and Equifax as part of their campaign to educate the average individual about the importance of a good credit history, the dos and don'ts list has acquired a demonic flavour at the hands of some of these experts. For example, a 35-year-old executive at a private firm was told by his financial adviser that he should consider taking a loan just because it will improve his credit score. Another was asked to get rid of his multiple credit cards to boost his credit score.

The expert wouldn't budge even after the person explained to him that he was using those cards for specific purposes like air travel, buying petrol, eating out and so on and that he gets discounts and other benefits on those cards. Also, those cards were issued to him free by the banks he had accounts with. "Even I was told recently that I should go for a loan because it will enhance my credit score and my chances of getting a loan from a bank in future," says Gaurav Mashruwala, a certified financial planner. "Somehow the Gujju blood in me doesn't buy the argument that I should pay interest now on a loan to get a loan in future."

Enter Credit Score

What's the score is almost always about cricket in this country. However, loan seekers have started dealing with another score --credit score -- in the past few years. Cibil was launched in 2000, but in the  past three to four years the company has managed to get into the consciousness of loan seekers with their credit score and credit information report.

"When we started out there was very little consumer awareness about the importance of having a good credit history or a good credit score. Our efforts were to fill this gap through a series of educative articles in the media," says Harshala Chandorkar, senior vice-president, consumer relations, Cibil. However, these seemingly simple pointers (minus the valuable details) have become almost a mission statement for some selfstyled advisers.

Bankers' Day at Work

Mashruwala says he finds it incredible that banks wouldn't go beyond credit score while assessing loan applications. "I don't think any bank would overlook the history of your relationship with it," he says. Rajesh Kumar, senior executive vice-president and head of debt management, risk intelligence and business analytics at HDFC Bank, clears the air: "The objective of a bank's credit appraisal process is to evaluate the capacity and the intention of a customer to repay a loan as per the agreed terms." He goes on to explain the process in detail: the bank collects information, relevant documents from the applicant and the credit information from bureaus.



This information is then processed against the predefined credit policy of the bank and, depending on the type and quantum of loan, typically banks collect the applicant's personal information. "This provides insights into the applicant's capacity to repay a loan. The credit bureau report provides details of the applicant's existing and closed loans, card details like amount sanctioned, tenure and promptness of repayment.


This clearly indicates the intention of the applicant, in terms of discipline towards debt obligations," he adds. Jairam Sridharan, head of consumer lending and payments at Axis Bank, says it is always a combination of factors that helps secure a loan. "Of course, a credit score of above 650 would definitely help, but a bank will also look into a host of other factors, including age, growth profile of the individual, demographic profile, the profile of the assets..."

Fixing the Problem

"Typically, banks inform the customer about the reasons for the rejection of her loan. If the customer finds that the reason given is wrong information about poor credit repayment in the past, then she needs to contact the credit bureau and the lender who reported the same and get the same rectified," says Kumar of HDFC Bank.

"The regulators have put in place a well-established process with clear timelines to help the customer carry out the rectification." Jairam says individuals shouldn't look for oversimplified methods to improve credit scores. "Individuals should remember that if they have a loan for an extended period of time, they should make payments on time." Chandorkar also asks individuals to pay attention to the details.

At the end of it, it all boils down to good financial habits, say financial advisers. Multiple credit cards won't spoil your chances of getting a loan, but your spending and repayment habits definitely can. Similarly, entertaining every other offer for a personal loan won't automatically disqualify for a loan, but you may have to do some explaining to the bank. This is because your credit history will show that you are always looking for credit. Always remember that there are credit information companies maintaining your record of payments on loans and credit cards, and submitting it to banks and other lenders on a monthly basis. And that eventually settles your credit score.  

Financial Planning Process

Conventional Six Step process

1. Introduction Meeting- Gather your Financial Data
We meet to gain insight into each other. Gather data, establish goals and objectives. This initial meeting ask of projecting your goals or ask where you want to be in coming years.
2. Data Gathering- Identify your goals
Devise strategic solutions that enable you to use financial resources to achieve your lifestyle objectives. Collect comprehensive data on all aspect of your financial life. Here, emphasis is put on analyzing your situation, approach and accounts.
3. Gap Analysis- Identify financial gaps
At this stage, we identify financial issues and gaps created due to discrepancy of your existing and aspired goals. Outline clear course of action, set written recommendations and prepare solutions to match your goals. Large emphasis is put on identifying weaknesses, obstacles and conflicts.
4. Prepare a financial plan
Provide options that describe how to get there. Prepare a statement of advice, which sets out the strategies and recommendations that address your goals and information. It outline a valid pathway that would take you how you can get there where you have always proclaimed for. Evaluate alternatives, risks & opportunity costs.
5. Annual Review
Monitor and re-balance your portfolio periodically, review and revise your plan to ensure it stays up-to-date even in changing lifestyle. Review progress and update it accordingly.
6. Implementation & Financial |Action
• In this step of the financial planning process, you develop an action plan. This requires choosing ways to achieve your goals. As you achieve your immediate or short-term goals, the goals next in priority will come into focus.
• To implement your financial action plan, you may need assistance from others. For example, you may use the services of an insurance agent to purchase property insurance or the services of an investment broker to purchase stocks, bonds, or mutual funds.
  
  

Need For Financial Planning

- A well thought-out and prudently drawn financial plan: Allows you to reach your financial goals in a set time period. Once your goals are defined and the time period for achieving those goals is set, then it becomes easier to achieve it. Ensures better management of money. A financial plan will keep an account of every rupee spent or earned. This will help you spend wisely while optimizing your savings. Helps you understand your priorities and risk preferences and invest accordingly. Priorities in life change with time and along with it your risk taking ability. A financial plan enables you to take into account these changes and accordingly make changes in your investment portfolio. Helps you to fulfill various responsibilities in life. We all have various family responsibilities to fulfil in life. And, we need finances to perform them. A diligently drawn plan ensures that you have adequate money to discharge your responsibilities. Helps you manage your assets and liabilities better. Financial planning can help you to manage your liabilities better by keeping an eye on your income and expenses. When you plan well, there is less chance of borrowing irresponsibly. Similarly, you can build assets for yourself over a period of time with proper planning. Helps you take better and informed financial decisions in life. Financial planning helps you understand your financial position better. And, based on the knowledge of your existing financial situation, you will be better equipped to take decisions.

What is Financial Planning?

What is Financial Planning?

Financial Planning is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a house, saving for your child's higher education or planning for retirement. The Financial Planning Process consists of six steps that help you take a 'big picture' look at where you are currently. Using these six steps, you can work out where you are now, what you may need in the future and what you must do to reach your goals. The process involves gathering relevant financial information, setting life goals, examining your current financial status and coming up with a strategy or plan for how you can meet your goals given your current situation and future plans.

The Benefits of Financial Planning

Financial Planning provides direction and meaning to your financial decisions. It allows you to understand how each financial decision you make affects other areas of your finances. For example, buying a particular investment product might help you pay off your mortgage faster or it might delay your retirement significantly. By viewing each financial decision as part of the whole, you can consider its short and long-term effects on your life goals. You can also adapt more easily to life changes and feel more secure that your goals are on track.

Who is a Financial Planner?

A Financial Planner is someone who uses the Financial Planning process to help you figure out how to meet your life goals. The Planner can take a 'big picture' view of your financial situation and make Financial Planning recommendations that are suitable for you. The Planner can look at all your needs including budgeting and saving, taxes, investments, insurance and retirement planning. Or, the Planner may work with you on a single financial issue but within the context of your overall situation. This big picture approach to your financial goals sets the Planner apart from other Financial Advisors, who may have been trained to focus on a particular area of your financial life.

Can you do your own Financial Planning?

Some personal finance websites, magazines or self-help books can help you do your own Financial Planning. However, you may decide to seek help from a professional Financial Planner if:       you need expertise you don't possess in certain areas of your finances. For example, a Planner can help you evaluate the level of risk in your investment portfolio or adjust your retirement plan due to changing family circumstances. you want to get a professional opinion about the Financial Plan you developed yourself. you have an immediate need or unexpected life event such as a birth, inheritance or major illness. you feel that a professional Advisor could help you improve on how you are currently managing your finances. you know that you need to improve your current financial situation but don't know where to start.

Be sure you're getting Financial Planning advice

The government does not regulate Financial Planners as Financial Planners; instead, it regulates Planners by the services they provide. For example, a Planner who also provides insurance transactions is regulated as an insurance agent. As a result, the term 'Financial Planner' may be used inaccurately by some Financial Advisors. To add to confusion, many Financial Advisors like accountants and investment Advisors can also offer Financial Planning services. To be sure that you are getting Financial Planning advice, check if the Advisor follows the six step process.

How to make Financial Planning work for you?

You are the focus of the Financial Planning process. As such, the results you get from working with a Financial Planner are as much your responsibility as they are those of the Planner. To achieve the best results from your Financial Planning engagement, you will need to be prepared to avoid some of the common mistakes shown above by considering the following advice:     Set measurable goals Set specific targets of what you want to achieve and when you want to achieve results. For example, instead of saying you want to be 'comfortable' when you retire or that you want your children to attend 'good' schools, you need to quantify what 'comfortable' and 'good' mean so that you'll know when you've reached your goals.     Understand the effect of each financial decision Each financial decision you make can affect several other areas of your life. For example, an investment decision may have tax consequences that are harmful to your estate plans. Or a decision about your child's education may affect when and how you meet your retirement goals. Remember that all of your financial decisions are interrelated.     Re-evaluate your financial situation periodically Financial Planning is a dynamic process. Your financial goals may change over the years due to changes in your lifestyle or circumstances, such as an inheritance, marriage, birth, house purchase or change of job status. Revisit and revise your Financial Plan as time goes by to reflect these changes so that you stay on track with your long-term goals.     Start planning as soon as you can Don't delay your Financial Planning. People, who save or invest small amounts of money early, and often, tend to do better than those who wait until later in life. Similarly, by developing good Financial Planning habits such as saving, budgeting, investing and regularly reviewing your finances early in life, you will be better prepared to meet life changes and handle emergencies.     Be realistic in your expectations Financial Planning is a common sense disciplined approach to managing your finances to reach life goals. It cannot change your situation overnight; it is a life long process. Remember that events beyond your control such as inflation or changes in the stock market or interest rates will affect your Financial Planning results.     Realize that you are in charge If you're working with a Financial Planner, be sure you understand the Financial Planning process and what the Planner should be doing. Provide the Planner with all of the relevant information about financial status. Ask questions about the recommendations offered to you and play an active role in decision-making.

Common Mistakes in Financial Planning Approach

The following are some of the common mistakes made by consumers in their approach towards Financial Planning     Don't set measurable goals.     Make a financial decision without understanding its affect on other financial issues.     Confuse Financial Planning with investing.     Neglect to re-evaluate their Financial Plan periodically.     Think that Financial Planning is only for the wealthy.     Think that Financial Planning is for when they get older.     Think that Financial Planning is the same as retirement planning.     Wait until a money crisis to begin Financial Planning.     Expect unrealistic returns on investments.     Think that using a Financial Planner means losing control.     Believe that Financial Planning is primarily tax planning

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