Financial planning is the process of managing your funds to achieve your desired goals in the required time frame. It involves analyzing your existing financial position, expected future cash flows, inflation and identified financial objectives to develop a comprehensive financial planning roadmap. This is aimed at making available the right amounts of funds at the right time in the future.

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A financial plan helps drive your financial decisions to a defined goal. It helps you determine how much to save today for the future you planned for, how much returns to expect on your savings and where to invest your savings to ensure you get the returns you desire.

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The duration of a financial plan depends on the goals that it sets out to achieve. It can cover

• Short term, medium term and long term goals. Short term goals are normally targeted in a 1 – 3 year framework, for example a vacation abroad
• Medium term goals fit into a 3-5 year horizon, for example, buying a home
• Long term goals are achieved in a period of 5 years or more, for example retirement planning

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There are various kinds of needs, some of which are listed below -:

• Retirement
• Child’s Education
• Child’s Marriage
• Asset purchase
• Insurance
• Investment
• Tax planning

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You can make use of the skills of a financial planner who can help you with the financial planning process. A financial planner is aware of the range of investment and insurance products available for you to choose from and can suggest solutions that are in line with your needs, profile and situation.

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Financial planning can be conducted in five basic steps:

Self analysis: “understanding you”

Before you begin your financial planning exercise, your relationship manager will analyse your present financial position and prepare your net worth statement, which will give a snapshot of your assets and liabilities.

Knowing and defining your needs

Once your current situation has been identified, your relationship manager will consider your future needs, in terms of the cash flows required for the future.

Identifying and defining solutions for your needs

Based on your financial requirements, the relationship manager will analyze the various investment opportunities available with their expected returns and identify those avenues that will possibly meet your expectations.

Facilitating a selection of appropriate financial solution

The relationship manager will share with you details of the investment opportunities identified by you and will apprise you of the risks and returns of each of those avenues so that you can make an informed decision

Providing updates on your portfolio

The relationship manager will provide you with regular updates on the performance of your investments. The financial planning process must be revisited regularly to factor in changes in your financial needs or underperformance of your investments.

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Once you have determined how much you wish to invest, you need to decide where to invest. There are various investment options available depending on your risk – return profile. The various products available are:

• Mutual fund schemes
• Equities
• Bank deposits
• Bonds
• Insurance Plans

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Every individual has their own risk taking capacity. Your risk-return profile is your level of risk tolerance. A high risk venture is normally associated with high returns. You could be one of the following three risk-return profiles or somewhere in between them:

1. Conservative i.e. you take minimal risks ensuring your funds are secure. You prefer investing in post office deposit schemes, bank fixed deposits, government bonds
2. Moderate i.e. you are willing to take some risks and prefer investing in mutual fund schemes
3. Aggressive i.e. you are willing to take high risks and prefer investing in equity, commodities markets and you may even be speculating for returns.

A financial plan can tell you what is required to achieve your goals, but it can not ensure you attain them. There are many circumstances beyond your control such as inflation, recession, political changes, your individual circumstances etc, which might hamper the achievement of planned results.

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The sooner you start your financial planning the better it is as it gives you more time to plan and gives your money more time to grow . Planning early increases your return possibilities while simultaneously reducing your risk.

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All financial plans begin with goal setting . You need to identify the time period for which you wish to plan and define goals in measurable units that you wish to achieve within this period.

The nature of the goals and the goals themselves vary depending on the individual. For a young individual who has started with his first job, the goal can be the purchase of a car. For an individual who has been working for the past few years, his goal can be the buying a house.

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Once you have identified the amount that can be invested, you need to know how much of those funds to put in the various kinds of investment options available.

Today, there is a wide array of investment options to choose from. The selection depends on your needs, profile and your individual circumstances.

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After investing, you need to ensure that you are getting the desired results from your investments . At regular intervals you need to track the performance of your investments .

For instance, in case you have invested in a mutual fund scheme, then the total value of your investments will be the product of the total units you have and the NAV of the units. The difference between this value and the amount you have originally invested will give you the returns on your investment.

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Insurance planning is an integral part of financial planning. An insurance plan takes care of the unforeseeable demands on your finances. For instance, an unfortunate illness requiring a surgery can be covered under a medical insurance plan and you need not dig into your savings and other investments to pay for it. In effect, insurance helps to keep your financial plan on track.

Insurance protects oneself, one’s family and assets from the financial consequences of unforeseen events. A classic insurance policy, i.e. a term plan, provides financial assistance to your family when you are not around. In addition, modern day policies have evolved to help you to build up your corpus of wealth, plan for retirement, protect your house and personal belongings, reimburse medical expenses, hospitals bills, etc.

The value of the cover that you opt for should depend on your need for protection. If you are applying for asset insurance, the value should ideally cover the cost of replacing your asset. Similarly, the final payout of a term plan should compensate your family for the financial loss that they will face in case of your demise. If you go in for ULIPs, endowment or money back policies, these should fall in with your overall financial plan and enable you to receive funds when you expect to use them.

At times, it is not possible for one policy to fulfill all your requirements. In such cases, you can purchase a combination of plans which will meet your needs.

Most risks to your life and property can be covered under insurance plans. Some of the common insurance plans are:

• Unit Linked Insurance Plans
• Term / Term with Return of Premium Plans
• Health Insurance
• Personal Accident Insurance
• Insurance cover for your Home / Car
• Insurance cover to protect your family from liabilities
• Travel insurance

Yes. The premium that you pay on your insurance policy is mainly dependant on your age and the tenure of the policy. The younger you are, the lower your insurance premium amount is. Moreover, in the case of policies that double up as investment vehicles, you benefit from the power of compounding, if you begin investing early.

No body can predict illnesses or accidents. These health hazards and hospitalization can cost you dearly in terms of medical bills and leave you with a major financial burden. To enable you to cope with such situations, insurance companies have launched health insurance plans. Health insurance takes care of your hospitalization and medication expenses. It could also provide financial support to you and your family.

While traveling abroad, you would not like anything to ruin your trip. However, unfortunate events such as baggage loss, passport loss, a medical emergency or an accident can affect you. Having travel insurance compensates you for such events.