1. It is much easier to build a financial plan when there are a small number of clearly defined financial goals.
2. Each financial goal comprises of an amount, a time frame and a risk level, for deciding an asset allocation to meet it.
3. Asset allocation simply means how much money is invested in equity assets, saved in debt products, and kept in cash.
4. Equity assets have the highest potential returns and growth prospects, although being most volatile over shorter periods.
5. Debt products offer stability, but lesser returns and no growth potential over longer periods.
6. Cash in hand helps during emergencies, but with no returns.
7. Adequate Term Insurance helps dependents in fulfilling unmet financial goals when one is not around any more.
8. Adequate Health Insurance prevents drainage of savings and investments during unplanned illnesses and accidents.
9. Inflation impact should be considered realistically when each financial goal is determined, and also when insurance is bought.
10. A few numerical tips:-
a) Save at least 30% of gross annual income.
b) Invest (100 minus age) % of savings in equity products for min. 5-yr timeframes.
c) Invest at least 10% of gross income for a retirement corpus.
d) Limit discretionary spending to 15% of net take-home income.
e) Maintain 4 months of living expenses as an emergency fund.
f) Limit debt repayments to 40% of gross income for mortgage-based assets, and 10% for other debts.
g) Buy Term Insurance for covering at least 6 times of gross annual income and outstanding liabilities.
h) Factor in 7% long-term inflation, which halves today's money in 10 years, when building a long-term financial plan.
2. Each financial goal comprises of an amount, a time frame and a risk level, for deciding an asset allocation to meet it.
3. Asset allocation simply means how much money is invested in equity assets, saved in debt products, and kept in cash.
4. Equity assets have the highest potential returns and growth prospects, although being most volatile over shorter periods.
5. Debt products offer stability, but lesser returns and no growth potential over longer periods.
6. Cash in hand helps during emergencies, but with no returns.
7. Adequate Term Insurance helps dependents in fulfilling unmet financial goals when one is not around any more.
8. Adequate Health Insurance prevents drainage of savings and investments during unplanned illnesses and accidents.
9. Inflation impact should be considered realistically when each financial goal is determined, and also when insurance is bought.
10. A few numerical tips:-
a) Save at least 30% of gross annual income.
b) Invest (100 minus age) % of savings in equity products for min. 5-yr timeframes.
c) Invest at least 10% of gross income for a retirement corpus.
d) Limit discretionary spending to 15% of net take-home income.
e) Maintain 4 months of living expenses as an emergency fund.
f) Limit debt repayments to 40% of gross income for mortgage-based assets, and 10% for other debts.
g) Buy Term Insurance for covering at least 6 times of gross annual income and outstanding liabilities.
h) Factor in 7% long-term inflation, which halves today's money in 10 years, when building a long-term financial plan.