Expense Budgeting

Expenses budgeting is an important step in taking control on your money.

Most of the people find it difficult to understand what is happening with their moneys. It clearly shows that they do not have control on their finances.

To take control on finances following things may help you :

1. Make a target expenses for each item per month and track the actual expenses track the deviations and find out the reason for deviation.

You may try this also which is called as envelop budgeting.

Apart fro the normal points which you can find everywhere, keep following in mind as well 


2. While spending be a "Informed spender ". Know the value of every rupee you spend ! 
After spending every rupee just think weather that is worth spending ? Try to figure out what is the benefit of that spending to you, weather it is Constructive or Destructive for you, This will help you take a right decision when you again think of spending on same type of thing.

3. There are few people who are facing a problem to cope up with the your child's high value demand. Are you one of them who are ?
Then you can try this ......
Give a specific budget to your child every year and ask them to fix their expense with in the budget.
Give them free hand to use the budget as per their requirement in a year. But stick to the budget and any savings from the last year should be allocated for the next year.
This will help in two ways.
A. Your burden of unexpected demand from children will go down as they know their budget for the year.
B. They will acquire some buying skills to use the allocated fund diligently.

4. While budgeting your expenses don't miss to allocate budget for self. This money you will allocate to your self to invest in your self.
How many of us really do that ?
It is very important to understand that the investment done in self yields highest returns, No investment in the world can match this return.
This amount which is allocated for you, Should be used in developing your skill set as well understanding of life. I would like to guarantee you that the value what you will get from this investment would be great and you would be more satisfied with your life.


About the author : Ashish Ramesh Bhave is a CERTIFIED FINANCIAL PLANNER, focused and specialized in financial planing for individuals and families. Can be reached at arbfinancials@gmail.com or Cell : +91-8862079292

Couple with grown up child

Couple with grown up child : 

This is a important stage of life as most of your goals towards children are near to realize, this may be the perid where the child higher education is in sight and you have to plan fir the funds for him or her, as well as to ensure that these funds are sufficient. If you had planned it properly till date you may have the money available with you for this purpose , if not.............. then you may have to run here and there to arrage for money and at this stage you will realize the disadvantage of not planning properly but still you will manage it to do, ok this is over now what is there for second child ? waht is there for your retirement and medical expenses after retirement ? do your children will take care of your retirement life ?????????????

No way what to do ? nothing to worry st this point also you can plan your finances in better way , start doing it immediately if not done at least your 2nd child education requirement and retirement will be taken care .


As per as the financial planning goes following are the things which are important in this stage :

1. Take care of your self : You have to take Medical insurance and Accidental & disability insurance even if you have it from your company . which will protect your from possible loss in wealth in emergency as well as protect your financial well being in unfortunate events. 
at this stage you may have to look at your insurance policies portfolio , if you had taken a not yielding long term commitments get rid of it , either surrender or reduce paid up such policies and switch to term plan , if you have any housing loan till then just have a cover for it. . now a days online term policies are attractive in terms of premium but take all due care at the time of choosing the insurer and filling up the form.
Choosing a company for life insurance there two parameters which you can look in to 
1. Claim repudiation ratio : least is good.
2. Claim settlement ratio : highest is good.to get more details visit.
http://www.blogger.com/blogger.g?blogID=8764878970925185637#editor/target=post;postID=4491279357279253785


2. Build cash reserves : This is a integral part of financial plannig at this juncture this becomes more important. You have to have at least 6 months expenses in your cash reserves as the job is not secure now a days. don't compramise on this to fund your child education expenses.if any of you have a secured job like Govt. permanent job then depending on the proportion of salary of the member having a stable fixed income the reserves can be reduced to 3 months expenses.
keep in mind that this should not be considered as investment.



3. Plan for long term and short term goals : Time is running now this is time where you have to take the investment decisions and implement it , this is a time to act in deciplined way in financial  management. Now have ot prepare for 2nd child's higher education expenses . break up your goals in to long term , mid term and short term, select right kind of asset for investment and start.
long term goals : Your retirement etc.
Short term goals : 2nd child higher education.
don't take any risky route for the short term goals funding and don't invest in safest route for long term investment, there are investment like Equity MF's ( Dont invest in direct equity unless and until you have your own research ) and real estate  which will yield you good risk adjusted returns on long term basis.
 Don't miss to track your investments regularly and take a immediate corrective action when needed.

4.One more thing you have to keep care that your investment should grow at the rate of salary growth.




If you can't do this on your own, we are happy to help you :)

It is important for all you have to build assets first and take care that you take appreciating assets not depreciating one.


Any views ???





About the author : Ashish Ramesh Bhave is a CERTIFIED FINANCIAL PLANNER, focused and specialized in financial planing for individuals and families.

Couple with more than one child : 

This is a era where we would like to provide the best available and possible to our child. The expenses for the primary education is increasing like any thing especially in so called international schools so to grow up more than one child is going to be a challenging task for their parents. 
In this scenario the cash flow should be strong and have to take all the steps very carefully  because only child education is not the only financial goal you have apart from that you have to plan for your retirement and aspirations.
The time had gone when parents use to rely on children for retirement. 

As per as the financial planning goes following are the things which are important in this stage :

1. Take care of your self : You have to take Medical insurance and Accidental & disability insurance even if you have it from your company . which will protect your from possible loss in wealth in emergency as well as protect your financial well being in unfortunate events. 
at this stage you and your spouse should have enough life insurance to protect the future for children, as well as have to protect the retirement portion for other partner., if you have any housing loan till then just have a cover for it. When you think of life insurance think about Term insurance only.Pl consider insurance premium as expenses. now a days online term policies are attractive in terms of premium but take all due care at the time of choosing the insurer and filling up the form.
Choosing a company for life insurance there two parameters which you can look in to 
1. Claim repudiation ratio : least is good.
2. Claim settlement ratio : highest is good.
You can visit to this link for more company specific information : http://www.irda.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo764&mid=31.1

2. Build cash reserves : You have to have at least 6 months expenses in your cash reserves as the job is not secure now a days.if any of you have a secured job like Govt. permanent job then depending on the proportion of salary of the member having a stable fixed income the reserves can be reduced to 3 months expenses.
keep in mind that this should not be considered as investment.

3. Plan for long term goals : Time is running now this is time where you have to take the investment decisions and implement it , this is a time to act in deciplined way in financial  management. Now have ot prepare for child's higher education expenses as well as regular schooling expenses 3 years down the line. break up your goals in to long term , mid term and short term, select right kind of asset for investment and start.
long term goals : Child's graduation exp., post graduation exp.,marriage. Your retirement etc.
Short term goals : Domestic tours, house margin money , Car purchase etc.

4.One more thing you have to keep care that your investment should grow at the rate of salary growth.

It is important for all you have to build assets first and take care that you take appreciating assets not depreciating one.


Any views ???



About the author : Ashish Ramesh Bhave is a CERTIFIED FINANCIAL PLANNER, focused and specialized in financial planing for individuals and families.

Young married couple with one child 

A couple with one responsibility to shoulder. An arrival of child had added two more financial goals, Child education and Marriage . 

This will also rise your house hold expenses. The growing child requires lot of attention and care.

Form the angle of male partner it dosen't make a big change as he will continue to work in same fashion as earlier but for female partner now she has to take care of her child as well as her career , may have to take a sabbatical for 1 or 2 years. This sabbatical now reduce the cash flow of the family for that respective years.

As per as the financial planning goes following are the things which are important in this stage :

1. Take care of your self : You have to take Medical insurance and Accidental & disability insurance even if you have it from your company . which will protect your from possible loss in wealth in emergency as well as protect your financial well being in unfortunate events. 
at this stage you and your spouce should have enough life insurance to protect the future for child., if you have any housing loan till then just have a cover for it. When you think of life insurance think about Term insurance only.Pl consider insurance premium as expenses. now a days online term policies are attractive in terms of premium but take all due care at the time of choosing the insurer and filling up the form.

2. Build cash reserves : You have to have at least 6 months expenses in your cash reserves as the job is not secure now a days.if any of you have a secured job like Govt. permanent job then depending on the proportion of salary of the member having a stable fixed income the reserves can be reduced to 3 months expenses.


3. Plan for long term goals : Time is running now this is time where you have to take the investment decisions and implement it , this is a time to act in deciplined way in financial  management. Now have ot prepare for child's higher education expenses as well as regular schooling expenses 3 years down the line. break up your goals in to long term , mid term and short term, select right kind of asset for investment and start.

4.One more thing you have to keep care that your investment should grow at the rate of salary growth.

It is important for all you have to build assets first and take care that you take appreciating assets not depreciating one.


Any views ???

About the author : Ashish Ramesh Bhave is a CERTIFIED FINANCIAL PLANNER, focused and specialized in financial planing for individuals and families.

Young married couple with both working members 

Let's congratulate this couple on this occasion, where both are independent and there is no liability. This is the new life where you both have to have a very strong communication with each other, communication is the thing which can solve maximum problems. Try to solve all the problems with discussion.


For both of you now there may not be much change in the expenses assuming both of you are earnings and spending before marriage as well .

Now you have to change the gear as the responsibility is entered in your life, As Now you may have to plan some more things in your life where you have to take collective decision.

As per as the financial planning goes following are the things which are important in this stage :

1. Take care of your self : You have to take Medical insurance and Accidental & disability insurance even if you have it from your company . which will protect your from possible loss in wealth in emergency as well as protect your financial well being in unfortunate events. life insurance may not important to you, as both of you are working , if you have any loan just have a cover for it. When you think of life insurance think about Term insurance only.Pl consider insurance premium as expenses.

2. Build cash reserves : You have to have at least 6 months expenses in your cash reserves as the job is not secure now a days.if any of you have a secured job like Govt. permanent job then depending on the proportion of salary of the member having a stable fixed income the reserves can be reduced to 3 months expenses.
3. Plan for long term goals : Time is on your side if you plan your investments in right way then you can be wealthy. Here you may have a little bit Idea about the possible expenses in future, try to find out the expenses at that time and start investing for same. break up your goals in to long term , mid term and short term, select right kind of asset for investment and start. starting and keeping yourself on track is a biggest challenge.
Use different type of instruments for investment like RD's for short term fund accumulation, Equity for long term , have a home to reside in , buy a car if necessary etc..., your first goal is to fund for your needs and this is just a start of it still time is in your hand and accumulation over a period of time can give you a very good fruits.

4.One more thing you have to keep care that your investment should grow at the rate of salary growth.

It is important for all you have to build assets first and take care that you take appreciating assets not depreciating one.


Any views ???



About the author : Ashish Ramesh Bhave is a CERTIFIED FINANCIAL PLANNER, focused and specialized in financial planing for individuals and families.

Financial planing for : Young Married couple with one working member.

After getting some what comfortable in job or business again it is a start of new journey Married life.
It is difficult to find right match for you in this big world, how ever you will find one.
Here we are taking a situation where only one member out of two is working Most of the times it happens that as there is no responsibility the major portion of income goes as an expenses. There is a fascination about Gadgets, towards costlier life style.

Your expenses are increasing now, your choices may change now so this is going to be an important shift in your life all the Best !!!

Now you have to change the gear as the responsibility is entered in your life, As there is only a single earning member in family 

Following are the things which are important in this stage :

1. Take care of your self : You have to take Medical insurance and Accidental & disability insurance. which will protect your from possible loss in wealth in emergency as well as protect your financial well being in unfortunate events. life insurance is now important to you, you should protect your income generating capacity for family. When you think of life insurance think about Term insurance only, calculate your human life value ( there are many online tools are available now for this ). Investments and insurance should go separate, Pl consider insurance premium as expenses.

2. Build cash reserves : You have to have at least 6 months expenses in your cash reserves as the job is not secure now a days.

3. Plan for long term goals : Time is on your side if you plan your investments in right way then you can be wealthy. Here you may have a little bit Idea about the possible expenses in future, try to find out the expenses at that time and start investing for same. break up your goals in to long term , mid term and short term, select right kind of asset for investment and start. starting and keeping yourself on track is a biggest challenge.

4.One more thing you have to keep care that your investment should grow at the rate of salary growth.


It is important for all you have to build assets first and take care that you take appreciating assets not depreciating one.


Any views ???

About the author : Ashish Ramesh Bhave is a CERTIFIED FINANCIAL PLANNER, focused and specialized in financial planing for individuals and families.

Financial planing - Life cycle series - 1

Financial planing for : Young unmarried without responsibilities.
It is a starting point of career and may exist still you feel established. Most of the times it happens that as there is no responsibility the major portion of income goes as an expenses. There is a fascination about Gadgets, towards costlier life style.
As there is no any responsibility no body feels a need for savings. Parents are also not giving any guidance about the savings or making them responsible about taking right kind of decision of career and financial management.
Majority of people whom I met who falls in this category are full of confusion about their future career and financial well being. Actually this is this is the stage in life where you can really build solid foundation of financial future.
Following are the things which are important in this stage :

1. Take care of your self : You have to take Medical insurance and Accidental & disability insurance. which will protect your from possible loss in wealth in emergency as well as protect your financial well being in unfortunate events. life insurance is not needed as there is no financial responsibility.

2. Build cash reserves : You have to have at least 6 months expenses in your cash reserves as the job is not secure now a days.

3. Plan for long term goals : The biggest strength which you have is time is on your side if you plan your investments in right way then you can be wealthy. Here you have little money to invest but as time is there the compounding effect will help you.

4.One more thing you have to keep care that your investment should grow at the rate of salary growth.

If you are at 21 and started investing for your retirement at age 55. and starting with Rs. 5000/- per month in an investment which gives you 12% returns and if your salary rise is 8% then you will accumulate aprox.Rs. 5.52 Cr. , if the rate of interest is 13% you will make 6.62 Cr.


It is important for all you have to build assets first and take care that you take appreciating assets not depreciating one.


Any views ???






About the author : Ashish Ramesh Bhave is a CERTIFIED FINANCIAL PLANNER, focused and specialized in financial planing for individuals and families.

Financial planning - A series -Life cycle.

Financial planing approach is keeps on changing as per the needs and requirements of an individual or a family.
The needs and the requirement of an individual change as per their changes in life cycle and change in family structure.

There are normal situations in the life cycle which keeps on changing the needs and requirements.
These normal situations are as follows :
1. Young unmarried without responsibilities.
2. Young married couple with one working member.
3. Young married couple with both working.
4. Couple with newly born child.
5. Couple with growing children and loan.
6. Couple with working children.
7. Couple nearing retirement.
8. Retired.

But there are some situations which requires special approach.
1. Young unmarried with financial responsibilities.
2. Married with one member disabled.
3. Critically ill married couple. ( now a days such marriages are happening ).
4. Couple with physically challenged child.
5. Couple with critically ill child.
6. Couple without children.
7. Widow / widower with children responsibilities.
8. Divorcee with / without responsibilities.


So as the situation changes there is a change in approach for financial planning. In this series of articles we will be discussing about these different cases  one by one.

So keep reading this approaches may be useful for you.

About the author : Ashish Ramesh Bhave is a CERTIFIED FINANCIAL PLANNER, focused and specialized in financial planing for individuals and families.

Financial plan- basic rule -12

Now you are prepared with the financial plan and monitoring well now what is the next step.
Next step in financial planing is to review financial plan !

Why to review financial plan : 

There is no need to review the financial plan if your life is following your one time prepared financial plan But fortunately or unfortunately it is not true.
Fortunately : If there is a positive unexpected change in cash flow, eg. higher increase in salary than expected, unexpected cash inflow may be in the form of bonus or gift, or spouse starts working who was not working earlier etc.....
Unfortunately : Job loss, major accident resultant in to disability or death of breadwinner, unexpected nonnegotiable expenses etc......
So 99.99% of the times there is a dynamic change in the cash flow , it may be the portfolio had not given the return as per expectation or given more that expectation.
As well as there may be a change in the goals which we have planned earlier.
Review is the process of doing an entire financial planning once again.

What should be the periodicity of review ? : 


As we believe there is no any slandered periodicity for review it should be at least once in a year.
But if there is a major change in the cash flow or goals or in the financial market the call of review should be taken.
The review can be initiated by client or can be by financial planner.

Benefits of review : 

you are sure that you are on the right track again.
If major change is it gets absorbed and strategy is made to nullify the effect of this on the goals or if it is positive then to revamp the goals.
gives you to take immediate corrective actions to absorb the change effect.

Follow the steps given in the Financial planning - Basic rule series posts ,
i am sure it will help you in living your life in financially planned manner.

 " All the best Enjoy the Life. "

Financial planing : Basic rule : 11

Implementation of financial plan : 

If you have followed all the basic rules your plan and the strategy is ready.but only planning will not help you if  it is not backed by implementation of the plan.
Implementation is an important aspect of success of any plan.
Here you have to plan a strategy for the implementation of financial plan. How it will go weather you are going to implement it one shot or staggered manner.
You have to priorities  implementation. first priority should be given to Protection then investment reserves and then investment portfolio implementation.
In volatile asset class it is recommended that you should in staggered manner.
You have to build the proper asset class mix and have to follow it.

Monitoring of financial plan : 

You have to keep a periodic check on how the plan is progressing, how the investment portfolio is performing , weather the goals we have planned for are same or changed , do any changes are there in cash flow ................
This will help you in touch with what you have planned and hook you to it.
Monitoring will help you to rectify any deviations from the plan and correct it in right time.
If there is major change you have to build in in your financial plan and if needed have to plan again.

Financial planning basic rule - 10

Taking investment decisions : 

In our last post we had seen how we can plan a strategy to take investment decision and how we can get direction for our decision making in investments.
once the following things are clear then we have to classify these goals in time wise classes.
Majorly you can classify it in three classes like


1. Short term : less than 3 years.
2. Mid term : between 3 years to 5 years.
3. Long term : more than 5 years.


Make a point that the asset classes are different for different time horizon.
majorly there are 4 different asset class in investments viz.
Equity,
Debt.,
Real estate,
Gold. 
These asset classes have their inherent time horizon for giving performance. their risk and return parameters also varies with time. so we have to marry right kind of asset class to right kind of time horizon goals. 
To make it more simple as per my knowledge 
Debt. is a good asset class for short term goals where the more importance is on protecting the existing asset with little bit returns.
Equity and real estate is an asset class for long term goals where you can take some risk to get a little bit higher returns.
Gold is an asset class which will provide stability to your portfolio, it is well known asset class to get inflation adjusted returns.


some people are seen putting their money in equity for short term which is a wrong thing as per as the investor strategy is concerned then in such a case you are not an investor but a speculator.
Some put their money for long term in Debt. instrument which is also wrong because in such a decision you are missing an opportunity.
Real estate is a favorate asset class of Indians they just love it and refuse to believe that there are chances that the prices can reverse. this is a asset class which gives you a true sense of ownership.
you have to make a mixture of different asset classes as per the goals you have which will help you to build diversification in your portfolio.
We will see it in more details.......................

Financial planning - Basic rules -9

Taking investment decisions : 

You can build a good financial success if you have a plan in place .

It is a proven & accepted truth that if you have a plan then you are in better position for strategies planning & it increase the probability of achieving the goal.

Then what we have to do is to simply plan target for each and every rupee we invest & align the returns from it to the financial goals in life.

A classic example of the goal based planning is planning a holiday . when we make a plan for holiday we think about three things on priority

1.  The destination

2.  The time available with us

3.  The pocket affordability.

The we plan how to go i.e. we choose the vehicle to travel ,

The same logic you have to apply to your financial management .

1.       Plan destination i.e. your financial goal.

2.       Time available : how many years you re away from your goal

3.       How much you can afford to invest for the said goal

Then you have to find out the investment opportunities available in the market, see weather they are aligning to your expectations or not , weather they are in capacity to take you to your destination. Choose the optimum risk & optimum return giving instrument out of the choice available.

This is how you can fix on the instrument which is suitable for you . most of the people do not think at all about the goals while investing their hard earned money & soon find them in problem when the time comes.

What is a financial goal and how to set it ? :

A goal in life which requires financial backup is called as financial goal.

The setting up financial goal is about knowing the amount required for the goal at the time of its completion.

There are different types of financial goals in individuals life but the most common are  Child’s education , child’s marriage & retirement planning .

How to find out the amount required at that point of time ?

You have to first find out the cost of such expenses as on toady, then find out the growth in the expenses in last few years ( there are some assumptions which we have to consider to find out the financial goal ), then calculate the future value of expenses considering the time in years for such expense  inflating it with the assumptive growth rate . you can find this using excel Fx function.

For eg. If you are planning for your 2 years old child’s higher education. It means that your child will require it at age 18, suppose such expenses are Rs. 500000 and the growth in such expenses is 10% per year . then we have to inflate Rs. 500000 for 16 years @10% per year.

Aprox. 2297500/- would be the requirement at that time which is Rs. 500000/- as on today.

So now destination is clear  Rs. 2297500/-

Time available is clear : 16 years

Growth rate is assumed @ 10%

If we assume the rate of return to be 12% per anum the monthly investment required is aprox. Rs.4210/- 

per month, weather this is affordable ? if yes you can go ahead to find out investment instrument which can give you the return for 12% and invest in it for 16 years.

If no,  either you have to find out an investment instrument which can give you higher comes returns or you have to change your goal because in this goal you can’t  change the time.

In this way you have to set the financial goals for you & have to find out the requirement for same.  Then calculate the requirement of investments for each goal & find out the instrument which aligns your requirement & affordability .

There is other way also by which the un-achievable goal also can made achievable but this requires more complex calculations where you may require consultants help . we do such a type of complex calculations for our clients & help the to achieve their financial goals.

Financial planning - Basic rule -8

Taking investment decisions :

In process of Financial planning is is important ot know how we are going to plan our investments, Many of the times it is a very difficult decision. But you have to take it because unless & until you invest your money you may not be able to grow it & may be keep on loosing value.

Let me to share you the truth which I came across talking with many individuals , You take lot of care & even fight for every rupee when it comes to earning however once it is earned the importance of money earned is not there . You don’t take due care of money which is earned to earn money for you the results are like ..............

 Big amount lying idle in Savings a/c since from few months.

 Investments are made with somebody’s free advice where the person was unknown & you don’t know whether he is a qualified to do so or not.

You don’t have any idea where your money is

You had given to broker who claimed to give you high returns but in result you lost all the money.

As per someone’s advice you invested in equity of specific company & since then the share has taken a down trend & one you sold had taken up trend.

 Your investments are creating pressure on you for committed investments.

Etc. etc………………………

Did any time you thought why this had happened ???????????

Let me tell you .

It is because of simple reason that you don’t know what you want from this investment , you invest without goals in Haphazard way. There is no structure at all.

No process is involved in selection .

It might be selected because one of the following reason.

Friends recommendation whose some relative may be an Agent

Advertisement.

Your relative is an Agent

What to do with money let’s do some investment ???

You are been chased by somebody

Tax saving etc etc…………..

So now why you are expecting these investments should help you in completing your financial goals when it don’t know what you expect from it ?

Surprisingly most of the individuals do not have any answer to this !

Let’s see how we can do it better !

You can build a good financial success if you have a plan in place .

It is a proven & accepted truth that if you have a plan then you can plan your strategies & the probability of achieving the goal is high.

Then what we have to do is to simply plan target for each and every rupee we invest & align the returns from it to the financial goals in life.

IF you agree to this may be some part also you should see our next post where We see it into more details !!!

Financial planning - Basic rule - 7

Should I take a Loan ?
how one should take a decision about taking a loan or not ?
Which are the tings he/ she should consider before going for loan ?
How to select the duration of the loan ?
There are many questions in the mind of common man about what to do & what to not.

Taking Decision :

The decision to take a loan is depend on :

1. The need. :
The need is the most important thing which drives this whole world. As I was telling you loans are helpful to optimize your CashFlows if used in right way.
Long term loans help you to acquire things today & to pay later no doubt you have to pay interest & the acquired property remains as a property to lender.
Eg. Housing Loan , You can buy a house on loan which may not be possible you to Buy. as well as you can stay in the house which is actually pledged to Bank & bank is a owner up to clearing of the loan. we had seen a generation trend where people was able to take a home at the time of retirement up to past 20 years, today any individuals who is working for 5 years has a home. this is made possible by optimization of Cashflow by loans.
( this also resulted in to Real estate price boom ).
The need and possible options should be analysed.
Need for 1BHK or 2 BHK or 3 BHK ?
Need for Car or Can we manage by Auto ?
Need to have a bigger home ?
Need to have one more property ?
We really have to differentiate between Real Needs & sentimental needs.

 2. CashFlow position.:
See weather your cashflow are in position to take a burden of loan,

3. Your working span :
You should retire debt free.so while taking loan you have to see that the loan gets over till retirement. so that there is no spill over. if the floating rate of interest is increasing your term over your retirement you should think of prepaying or increasing your EMI.

4. weather to use your own resources or to take a loan ? 
This you should decide on the basis of opportunity available , Your age , time to retire the duration of loan . for the short duration loans it may not have a big effect but for longer duration loan it is.
Eg. you want to Buy a House costing 3500000/- Bank is ready to Fund you 80% @ 11% for 20 years.
You have 3500000/- ready with you no the question is to take a loan or to use your own capital.
In my view if it is a question of long duration you should go for loan. Why ?????
Just work out.
If you take a loan
Loan Amount : 2800000/- @ 11% ( sake of calculation assume it is Fixed )
EMI would be : 28901/- Term : 20 years
Total have to repay : 6936306/- oh a huuuuuuuge interest of Rs. 4136306/- you should save this Right ??? But wait see what you may loose .

IF same amount of Rs. 2800000/- invested for 20 years @ 14% will yield you 3,84,81,772/- if you plan proper asset allocation 14% per year is possible.As well as you money is free for opportunity.

So now what to do ? if your CashFlow permits go for a loan! As well as take a benefit of Govt. Facility on repayment.

Like in today's market the Auto loans from Few companies are available at unbelievable rate of 6 -7 % where it is offered in market @ 12 to 13% . IF there is a need go for it .

Financial planing - Basic rules - 6

We are continuing from the last post i.e. loans
Let me to share one thing RBI is working on to get more transparency in the business of lending, RBI looking towards wavier of the Prepayment charges levied from bank this may be good for clients so it is like a Number potability in telecom. You may have different options & banks has to compete on the interest rates & the existing clients will not be taken for grated or taken for ride. Good thing.!!!

But do you know today also you can negotiate on the interest rates. Depending on the Financial strength, your salary or income your CIBIL credit report data you can negotiate the rates. Negotiating interest rates means negotiating margin taken by banks or Financial institutes over their basic lending rate .
IF you could able to negotiate 1% also it can have a very positive effect over a period of time on your cash flows.

Normally many people I had seen are in hurry of getting loan disbursed, majorly it happens with long term loans like Housing loan. So when you are in hurry without giving thought on long term implication of loan we just see that the disbursement happens & keep on cursing the Financial institutions rest of the life.
" But be sure that if you are signing any document before reading & understanding it then you deserve to be cheated ".
Ok ! that is not the subject of this post, I was talking about loan interest rates. Before taking any type of loan  :

Do your homework properly
1. Do proper study of the Interest rates offered by Different institutes.
2. Ask your Builder enough time for disbursement of Loan.
3. Try to understand the different conditions the financial institutes is putting on you.
4. Try to find out the possible trap for you in loan agreement.
5. Try to negotiate with financial institutes for interest rates on the basis of CIBIL Credit report & Financial rating.
6. Be ready to take little pain in getting the process done which will payoff very well in long run.
This 1% can be used to optimize your cash flow in Financial planning and can be aligned to your Financial goal. As well as you can claim the Tax benefit as well.

We will put some more focus on loans in next post as well !



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Financial Planning - Basic rules - 5

We are continuing Financial planning - Basic rules - 4 i.e. the Loans , how it can be used for optimization of Cashflows.
For new people just get a reference .
The Debt income ratio we had seen Now it is EMI servicing ratio. This ratio will tell you about how much maximum EMI you can service .

Including all types of loans the EMI should not be more than 45% of take home salary. Means if you are earning Rs.100000/- per month after tax then you can service EMI maximum of Rs. 45000/- if it is more then you should think of prepayment. IF it is less............No don't go for loan it is Good ! but yes if you are in need of loan & your EMI servicing ratio is less you can take other loan for that maximum limit .
Many of the times question comes from clients why this limit is there ? it is with simple reason
Your household & life style expenses is 35% of income + 45% income is goes towards EMI  then what remains is only 20% . This should be minimum percentage of income you should save for your Future expenses which in Financial planning we call as Financial goals if you can't save today you may not be in position to spend tomorrow.

We will continue it in next post.

Financial Planning - Basic Rule - 4

Financial planning deals with optimization of the CashFlow.
Optimization can be done in different ways some are making wise investment decisions , parking money for opportunity in right kind of instrument as well as taking benefit of the credit facilities available.
Yes what you are guessing is right i am talking about Loans. Loans can be used as a CashFlow optimization tool .
The loans are taken as it gives a facility to have money today & payback it in installments, surely not for free But with Interest. Actually the main business of Financial institutions is of Borrowing & lending.
Banks Borrow money from people & use them to Give loans, it is their business. It means that when you are making a FD in bank, you are lending money to Bank. :), Banks main profitability depends on the spread between the rates of Borrowing & lending.

Loans : In old days when any body is taking a loan was presumed to be a bad sign ! But now a days buying anything directly through Cash may be a bad sign , May be you are not aware about the facilities available in the market like that......................... so the time is changing & if there is any benefit to us we should change !
Taking loan is not a bad sign, not always . the decision about loans should be taken on the basis of Financial position & Debt Income ratio.
Debt income ratio will advice you about how much loan you should take or you can afford.It is calculated in multiples of Yearly income . at the starting phase of the career you may afford to have higher Debt Income ratio however as you move on in your career travelling toward retirement this ratio should go down.

In my opinion one should not have more than Debt equal to 5 multiple of yearly income. i.e. if you are earning Rs.600000/- pa your Loan amount ( Debt ) should not exceed 3000000/- at any point of time. however this multiple should go down as per the progression to retirement & should become Zero at the time of retirement.If it is above this limit you should think of prepayment or increasing your income :).

We will discuss other aspects of Debt in next post.
 
  

Financial planning - Basic rule - 3

Financial planning is about streamlining your cash flows towards achieving your financial goals, then it is important to know the basic characteristic of the CashFlow. 


Expenses : 

Lets start with how we spend : the expenses are the main and the first outflow from our pocket. Many of the clients asks me are we spending too high or very less ? but let me tale you , the expenses depends on how you look towards life. But yes if we have to empower ourselves and to have a Good financial future then we should know what portion of the income we can utilize for expenses majorly Household & lifestyle expenses.
Some people talks about bringing new thinking system for savings which talks about 
Income - Savings = Expenses.
I will not buy this, this may not be a good thing, i feel if you are happy about the today's then only you can enjoy tomorrow, so first be happy today & then think about tomorrow. There are many people who leaves only in Future which never becomes today !
At initial phase of career you may not be getting any chance to save may be 100% of your income is going towards expenses, the same happens when the family member number increases. but ignoring theses some exceptions the expenses should be between 30%  to 35% of income, if it is more than that without the major change in family structure or major exceptional expenses then it should ring a bell !
try to write down & track the expenses.


This is important aspect of Financial planning which make or break you & your financial future .


Any Question ? Ask !!!

Financial Planning basic Rule - 2

Saving tax and making a strong foundation to your Financial planning is very possible we had seen 80C then just have a look at 80D.
This can help you to plug the possible hole in your Ship. Any premium paid against Medical insurance plan gets directly deducted from your income.
Rs.15000/- for premium paid for you ,your spouse & children & additional Rs. 20000/- pa if you are paying premium for your Dependent senior citizen parents.
Why you should have Medical Insurance ?
Many reasons :

1. You don't know when you will require it.
2. Because you are healthy, Fit & Fine today because if you are ill may be you are at higher risk and may be covered at very high price.
3. This will protect your hard earned money from flowing away from you if any emergency happens.
4. Most of the people don't know what is the cover their employer is giving them, weather it is sufficient or not.
5. If you have a family critical illness history you should have Critical illness cover as well before it hits you as well.
These policies should be considered as expenses and pl never think that you had taken it for getting benefit, you may not like it .
This will help you protecting your money getting ill or face casualties.
The insurance plan with tax saving feature in it will help you to build a strong Foundation to your next Journey.
Happy Tax saving.

Financial planning - Basic rule -1

Financial planning is all about the optimum utilization of the CashFlow. The first way to think about the optimization of the CashFlow is to save Tax.
Tax saving is very important, this is the only facility which salaried class is getting on their earnings, as well as this is the additional benefit for others, How ever most of the people are seen not taking care in Choosing proper tool to save tax.
In India you can save tax by the way of 80C which is up to Rs.100000/- pa & 80D which is maximum of Rs.35000/- pa.

Under 80C   there are many options available , But do we really think about this options to optimize our resources ?
Think Again ............................
Can it be used as a Financial Planning tool ?
.....................
...............................
The answer is Yes !
The tax saving as well as Financial planning tool - 80C.
How ?
If you pay a life insurance premium you will get deduction. But hold I am not talking about any policy of life insurance , I am talking about Purest form of Insurance i.e. Term Insurance which can give a very strong foundation to your Financial plan i.e. Risk coverage . You can take very high amount of insurance with very less premium. Insurance is an Contingency asset which gets created immediately & then you pay for it.The remaining portion out of 100000/- can be invested in ELSS which is again a Tax saving instrument in which you can invest over a period of time to create Retirement corpus.
If you are 30 year old & going to retire at 58 you have 28 years of investment period  in this period you can make 336 contributions.
Just to give you an example a 30 year old individual can get 1cr. life cover as well as can accumulate more than 2cr as retirement fund by utilizing 100000/- per year for 28 years very easily.

Think about it

We will take 80D in next Post .