of personal finances Proliferation of new and complex financial products
Retirement plan
Earn a satisfying income postretirement Enjoy a comfortable life postretirement
Calculating the corpus
Retirement age (years) Current age (years) Life expectancy (years) Years after retirement Current annual expenses Average return on investment Inflation Inflation adjusted return Total retirement corpus required 60 58 83 23 Rs. 1.80 lacs (Rs. 15,000 per mth) 12% p.a. 5% p.a. 7% p.a. Rs. 21 lacs (approximately)
Action points for retirement plan
1.
2.
3. 4. 5. 6.
It is never too late to start Deposit everything you can into your retirement plan Reduce expenses Aim for good post-tax returns Refine your goals Sell assets that are not producing income or growth and invest in income producing assets
Financial planning
Financial planning is a process of meeting your life goals through proper management of your finances
Financial planning process
IDENTIFY GOALS
Goals are dreams with deadlines - Zig Ziglar
Savings or investments?
Loans or investments?
Preparing the budget
Importance of budgeting
Preparing a budget help:
◦ Keep track of all your incomes and expenses ◦ Control the expenses ◦ Make you aware of necessary and unnecessary expenses ◦ You get better control of your day-to-day life
Preparing a budget
Add up your income Add up your expenses Subtract expenses from income Cut expenses Increase income
What is your wealth? Correct measure of wealth is known as net worth
Net worth = assets – liabilities
◦ Assets = what you own ◦ Liabilities = what you owe
RISK AND RETURN
Risk and Return
Risk
and investing go hand in hand Risk increases as the expected potential return increases No-risk, what’s that? Manage the risks
Effects of Inflation
Item Sugar (1 kg) Cooking oil (5 liters) Rice (1 kg) Petrol ( 1 liter) Price in 2001-02 Rs. 16 Rs. 290 Rs. 14 Rs. 33.46 Price in 2009-10 Rs. 40 Rs. 500 Rs. 35 Rs. 48.83
Inflation Effects on Investments
Initial investment Interest on investment Value after a year Inflation Your expenses after a year Investment Rs. 1,000 5% p.a. Rs. 1,050 6% p.a. Rs. 1,060
Retirement Planning
Start
early and retire peacefully Plan wisely Track and review your plan Don’t dip into your retirement savings
Investment needed to create retirement fund
Investment commandments
Clear and reasonable goals All investments carry risk Diversify to reduce risk Select appropriate asset mix Recognise limits of your knowledge Do your homework Income-tax is payable on investment returns Avoid investing on basis of hot tips and rumours Don’t follow advice you do not understand Say “NO” if you are not convinced Don’t take risks you cannot afford or are not comfortable with
CHOOSING THE RIGHT INVESTMENT OPTIONS
Safety
Liquidity
Returns
Investment Vehicles and Insurance Products
Avoid investment scams
CONCEPTS OF ESTATE PLANNING
Power of attorney Nomination Will Assignment of insurance policies