Financial Planning vw

Category: Education

Presentation Description



Presentation Transcript

What is personal Financial Planning : 

What is personal Financial Planning 1 Personal Financial Planning is the process of formulating , implementing and monitoring multifunctional decisions that enables an individual or family to achieve financial goals. Financial goal can include buying a home , saving for a child’s education , or planning for retirement. Personal Financial Planning covers Risk Management , Retirement Planning , Investment Planning , Tax Planning , Education Planning , Estate Planning & much more. Financial Planning puts you in control of your financial life.

Need for Financial Planning : 

Need for Financial Planning 2 Adequate risk cover for life & assets Matching investments with Financial Goals Growing Complexity of products Preparing for Contingencies Dis-integration of joint families in India. Meet Retirement Goals –Life expectancy is on the rise. Proper asset allocation/ Investing intelligently Reduce the amount of taxes Estate Planning Avoiding emotional financial decisions

Benefits of Financial planning : 

Benefits of Financial planning 3 Achieve your financial goals in a disciplined manner. Improve net worth growth Maintain standard of living after retirement Plan for education expenses Provide financial security for your family in case of an unexpected event. Improve Investment performance. Minimize your taxes and maximize the after-tax return. Reduction or avoidance of problems with creditors. Spending money wisely Avoiding financial stress/peace of mind

Personal Financial Planning Process : 

Personal Financial Planning Process 4 Determine current financial situation – What you’re worth ? Define measurable goals - How much you need to save ? Identify alternative courses of action Evaluate alternatives Formulate an action plan to meet goals Review and monitor the plan periodically Financial Planning is an ongoing process that changes as your financial situation and position in life change. No one is exempt from the need to develop a personal financial plan

Power of Compounding : 

Power of Compounding 5 Compound Interest is the effect of earning interest on interest , resulting from the reinvestment of interest paid on investment’s principal. E.g. If we invested ,Rs.25,000/- today after 40 years @ 6% rate it will become Rs.2,57,125/- @ 12% rate it will be Rs.23,36,225/- (Almost 10 times !) @ 18% rate it will be Rs.1,87,59,458/- The rate of return we realize and the length of time we keep our principal and earnings invested are very important.

Concept of Investment Planning : 

Concept of Investment Planning 6 Investment vehicles depends upon : Risk : Safe , Low , Medium , High Return : High , Average , Adequate Time Horizon : Short Term , Medium Term , Long term Life Cycle : Accumulation , Acceleration , Preservation Diversification : Liquidity , Fixed Income , Growth Tax Planning : Taxable returns , Tax-free Returns , Tax-deferred returns

Traps and Obstacles : 

Traps and Obstacles 7 Not linking investments to a specified goal Market Timing Investing in anything you don’t understand Thinking of risk of losing money and overlooking the risk that your money will not be worth much when you need it Chasing last year’s highest-performing mutual funds Reacting to volatility in stock market Overinvesting in one basket Constantly changing investment product Losing sight of the real after-tax rate of return on investment Investing in anything that seems too good to be true

Helpers : 

Helpers 8 Time horizon Asset allocation Compounding Rupee-cost averaging Tax-deferred plans Mutual funds Lower tax rate on long-term capital gains Reinvestment of dividend Rebalancing

Retirement Planning : 

Retirement Planning 9 Reasons for retirement planning : 1.People are living longer 2.Inflation which reduces purchasing power of money 3.Dis-integration of Joint family system Obstacles to retirement planning : a. We start too late b. We put away too little c. We invest too conservatively

Wealth Creation : 

Wealth Creation 10 Income :Current stream of cash flow Wealth : Income invested for growth in investment vehicles. It is the total value of all items owned by an individual Investment vehicles : Real estate , Bullion , Shares, Small saving schemes, Pension funds, Mutual funds , life insurance Wealth erosion : More consumption, eroding purchasing power of money , taxation, fall in interest rates, Not planning for emergencies, Government legislation. Risks that can erode significant life savings: 1. Longevity “Risk”, 2. Inflation risk, 3. Asset allocation risk,4. Excess withdrawal risk,5. Health care expenses risk. “Research has shown people with written goals are more likely to success than others”

Getting Your Financial Act Together : 

Getting Your Financial Act Together 11 Start keeping good financial records Take adequate insurance cover Put together a realistic budget you can live with Save for specific goal by paying yourself first Set up an emergency fund Optimal Asset Allocation Begin saving seriously for retirement

Lifestyle Creep : 

Lifestyle Creep 12 Lifestyle creep occurs when increase in income cause a similar increase in the things you acquire. Every rupee that comes in to your possession will be spent –by you, your heirs, or the government “Spend it in ways you find personally fulfilling .” You need to examine your current lifestyle and plan for your retirement lifestyle by carefully defining goals and making financial choices.