Hi,
Through my previous article ,we have understood ,that the best way of initiating our financial planning is to sit and jot down all our future cash flow requirements . What are the proposed expenses for the years to come, the large future financial responsibilities coming up and make decisions which are more optimal and meaningful today.
Once we have done the above , we arrive at the ideal amount we can save now , coming months and years to come . This surplus has lot of work to do .
How many times have we not heard,
a) I don’t believe in saving ,because there is so much volatility in market.
b) I lost big time in shares , and therefore I would like to stay away
c) I believe in living in present , I don’t like to think of future.
I get to hear this very regularly , hence the need to clarify .
a) Planning is not only about investing.
b)Every saving need not be related to market, saving is for our goals, our children,our life .Saving should be done atleast to beat inflation, otherwise our money will only keep eroding.
c)Savings has a pattern which is explained in the pyramid below . When we start planning our finances ,we should first look at securing our base . First things first :
a) Lets set aside a contingency fund for any emergency expenses or expenses more than budgeted.
b) Protect our family and key financial responsibilities against loss of income /income earner’s life by taking sufficient term life insurance cover.
c)Guard the assets that we have already created by preparing a will.
d)Once this is done, and still surplus available, put them in guaranteed return instruments like PPF,VPF,Tax free bonds ,FD’s,RD’s.
e)Still more surplus available, now look at growth options like Large Cap Equity Mutual funds, own house, safe long term real estate avenues.
f) Now all our cash flows are planned and we still have money to play ,we can then look at speculating,stocks ,day trading shares or short term real estate avenues.Any loss here ,will then not pinch us hard ,as we have not compromised with our needs at any point.
Many of us often follow the pyramid,but upside down. So will our finances not tumble down like a cards house? Now,is it easy to answer the above questions ?
The objective of this article is to help one reason that one should use the right product at the right time in a systematic way . Else ,we will only be disappointed with our decisions .
Thanks
Best regards
Deepa
Deepa Nittala 