Quick Tips: Early Financial Planning for Beginners
Note: For ULIP policy, the investment risk in the investment portfolio is borne by the Policyholder. The linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender/withdraw the monies invested in linked Insurance Products completely or partially till the end of the fifth year.
As millennials, there are constant temptations competing for the limited money in our wallet, thanks to the very specific ads exploiting our wants everywhere we go on the internet. This is combined with the impossible-to-resist on-demand factor which further stretches our budget: from our cab rides to our food, everything is one click away. No wonder we find it difficult to save - as Moody's Analytics reports, savings for the millennial age group has decreased to a negative 2% (that spells debt for those of you who’re confused).
Sound financial planning is the need of the hour. With the right combination of planning tips and timely investments, you can successfully manage your finances and stop living paycheck to paycheck. And if you plan well, the Euro trip might just materialize too! Don’t wait for that bonus or hike to start putting money away - the cardinal rule of financial planning says to begin as early as possible.
Let’s illustrate this with an example: Dishant and Ravish start their first jobs at a monthly salary of Rs 30,000.
Dishant is the chill party dude who spends everything he earns. But Ravish saves for a rainy day. He manages to put away 5% of his salary every month in ULIP’s consistently for 30 years.
Sense knocks Dishant later and he begins investing, 10 years later than Ravish. He, too, begins to put away Rs 5,000 every month. But at the end of 30 years, Dishant has only managed to earn 18, 39,986 but Ravish managed to amass Rs 34,81,815.
See the difference there?
What is Financial Planning?
The seriousness of the words ‘financial planning’ sometimes scare away interested people - let us simplify it for you. It is nothing but planning your finances effectively to meet your life goals. Plan your expenses, invest in instruments that offer good returns, and prioritize your spendings and investments. Voila! You are all set.
Financial planning relies on three fundamental pillars - your current financial status, your goals, and your investments. Taking into account all of these, you chart a plan for yourself to counter all expected and unexpected challenges you might face in life.
Suppose you want to go on an international tour by the end of 2025. For that, you need an estimated corpus of Rs 11,00,000. Now that you have your objective set, you need to assess how much money you need to set aside every month in order to meet the required sum. Once you have your budget eked out, you need to begin investing.
Assuming you begin investing Rs 20,000 every month starting now, you will amass a whopping Rs 19 Lakhs at the end of 7 years at a return rate of 10%. So now, you can not only go on that much-desired trip but also invest in a budget car - or whatever you want from the surplus!
But how to get there? Mutual Funds and Unit-Linked Plans can help you achieve your goals in a manner that is not too hard on the pocket. They also ensure maximum returns at the same time.
Look for these financial planning tips to make your life easier.
A. Have a Savings Goal
Each person’s savings goal is contextual and unique to the individual. However, experts have given a simple rule of thumb to help you figure out if your savings are enough.
If you’re in your twenties, aim to save 25 percent of your overall gross salary. Try and ensure your lifestyle don't take up 75 percent of your gross income.
By age 30: Have the equivalent of your annual salary saved. If you earn 10,00,000 a year, aim to have 10,00,000 in savings when you hit 30.
Post thirty, for every five years, increase your multiple of savings. At 35, save twice your annual salary. At 40, three times your annual salary in savings, and so on.
We are here to give a similar advice: Save the equivalent of your salary by age 30 and to have 10x your final salary in savings if you want to retire by age 67.
While this can sound daunting today, if you start putting a little bit of money aside even in your twenties, it’s not going to be easier than you expected to hit that milestone. We all know that life is not linear, and there will be years when you’ll not be able to set aside as much as you want to: there’ll be health emergencies or weddings, or just some good old splurging. You may have to adapt your plan accordingly, and increase or decrease your savings, based on life events.
B. Create a Budget to get there
Sound financial planning requires you to know how much money is coming in every month and how much of it is going out. Are you aware of how your current investments are performing? Do you track all your expenses - from the multiple credit cards to the subscriptions you forgot you’re still paying for?
"It's the foundation for everything when it comes to managing your personal finances," says Douglas Boneparth, author of The Millennial Money Fix.
Financial planners often advise a very simple life hack: calculate all of your spending and imagine you made 10% less -- then start working to save that 10%.
C. Get a Life Insurance
Taking life insurance at the earliest is another important financial planning tip. You need to make sure that your loved ones are financially safe and secure at all times - even when you are not around. The best way to ensure their protection is to get a term plan at the earliest. Why? Because premiums get expensive as you age, which can easily be avoided with a headstart.
D. Health Cover
Health is your most valuable asset. If you have a good health cover that protects you from critical ailments, you are all set. As you grow older medical policies get expensive and you might end p paying higher premiums. secure
So that's that! Follow these tips and you can be assured of a safe and secured future, one that has you at the helm, doing all that you want! The key is, start planning today for a better tomorrow.
Disclaimers: *Taxes are subject to change as per tax laws.
*In the policy the investment risk in the investment portfolio is borne by the policyholder