What is Financial Planning?
Financial Planning is a systematic way of investing the money as per different financial goals of an individual and then attaining these goals in timely manner. Have a look on few examples:
- Purchasing a car costing Rs 10,00,000 in next 5 years.
- Planning for Child’s higher education Of Rs 50,00,000 after 15 years.
- Planning for Child’s Marriage Of Rs 75,00,000 after 18 years.
- Planning to purchase house for Rs 1,00,00,000 after 7 years.
- Accumulation of Rs 2,00,00,000 for retirement after 20 years.
- Protecting family through adequate insurance.
- Tax saving in efficient manner.
Objective of financial planning
To ensure that right amount of money is available to individual at right time inorder to meet his financial planning goal. This will put less financial burden as majority of money will be accumulated in form of return generated by appropriate investment. You will learn this when we will discuss the case studies.
Case Study 1 : Child Education
Case 1: A child age is 1 year old and parents want to start his education planning for his graduation with a minimum amount of Rs 10 lakh (Today’s value). They have finalized a Mutual Fund Scheme that has a history of generating 12% return per annum through systematic investment plan. what amount he must invest through Mutual Fund Systematic Investment Plan (SIP) every month to meet this goal? (Important Note: Child Graduation will start at 18 years of age and take inflation at 6% in consideration)
Case Study 2 : Child Marriage
Same child is 1 year old and parents want to start his financial planning for his marriage as they planned to save Rs 25 lakh (Today’s value). They have identified a Mutual Fund Scheme that has a history of generating 12% return per annum through systematic investment plan. what amount he must invest through Mutual Fund SIP every month to meet this goal? (Important Note: Child’s Marriage planned 30 years of age and take inflation at 6% in consideration)
Case Study 3 : Retirement Planning
Case 3: A person is working in Pvt. job and his current age is 30 years. His package at present is Rs 1 lakh per month and he planned to retire at the age of 55 years and expect same standard of living after retirement. The current inflation rate is 6% per annum and he planned to built his retirement corpus though Mutual Funds SIP that is providing 12% return. How much amount he should contribute through SIP to live a same standard of living for 25 years after retirement? (assumption he will live till 80 years)
By this time, you have a fair idea that a good financial planning not only result in attainment of financial goal but save lot of money as your goal is achieve with the return generated by scheme itself. What we have found that most of us ignore financial planning and at the time of big expenses we depend upon loans and put our self in financial crisis. Also in this article few examples are considered for making you aware about this important aspect. There are many more financial goals specific to your requirement. So let’s start financial planning from today itself!
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