Finance planning is one of the most important but often neglected activities in a working person’s life. Life about forty years back was much simpler with limited income, limited expenses and limited options.
An individual used to invest in bank fixed deposits, have a basic life insurance policy and invest in salary provident funds. After retirement, he used to depend on his retirement benefits like provident funds and gratuity. As expenses were lower, it was sufficient to manage with just this.
But much has changed in recent years. Incomes, expenses and life expectancy have increased considerably. An individual has to plan for income for life for nearly a quarter of a century after his retirement. So, it is necessary to have a proper financial plan.
Suggested Read: What is the financial planning process?
Three types of financial plans
Three main types of financial plans are cash flow plan, investment plan and insurance plan.
#1. Cash Flow Plan
Cash flow refers to an inflow and outflow of money during a selected period, generally a month. An individual, during a month, earns his salary as inflow and then there are outflows such as regular monthly routine expenses like household expenses, installments on loans, etc.
A cash flow plan involves preparing a budget that will keep track of all expenses and income. A person without adequate cash flow is at risk of going into financial trouble to fund a monthly income-expenditure gap. For such times, there is a need for an emergency fund for up to six months of salary to prepare for an unexpected income loss.
#2. Investment Planning
Investment planning is identifying the goals in life and prioritizing them in order. A good investment plan is needed early in one’s working life if a person wishes to accumulate a good wealth corpus. Investing could be in equity funds, debt funds, liquid funds and balanced funds.
According to a study, an individual who starts investing in his early twenties generates a substantially higher return to the time of his retirement than a person who starts in his early thirties. Investment planning depends on a person’s risk and returns profile. An individual has to set limits regarding the risk he is ready to take, and the returns expected.
Investment should be made early in life so that by the time of retirement, an individual would have a good corpus. Investment planning includes investing in various financial instruments to make a diversified and strong financial portfolio that has the potential to help you achieve all your financial goals.
ULIPs can be considered for investment. ULIPs give triple tax benefits, which almost no financial products give. ULIPs do not attract capital gains tax and there are no charges when you move funds from debt and equity instruments. A maximum of Rs 1.5 lakh can be claimed as deduction under Section 80C. Note the tax laws are subject to change.
#3. Insurance Planning
The two main types of insurance are life insurance and health insurance. The main purpose of life insurance is to provide a safety net in times of crisis both in your presence and absence.
An adequate insurance cover should be taken that ensures that the family can maintain their standard of living even after the person’s demise. There are other life insurance products like guaranteed plans, traditional plans, child plans, retirement plans, and whole life insurance policies that provide many more benefits and are good savings tools.
Medical insurance is also an important part of insurance planning. COVID-19 has shown that the need for medical insurance cannot be taken for granted. A major disease or an accident can wipe out the savings of an individual. An individual can live in peace with medical insurance, assured that major medical expenses will be covered by the policy.
Future Generali India Life Insurance has life insurance plans as well as health insurance plans for a strong financial planning.
Conclusion
If you haven’t drawn up a financial plan, it’s never too late. Opt for one of the three financial plans listed above for a safe and secure future. The sooner you start investing, the better the returns, so begin today. Visit Future Generali India Life Insurance to find suitable plan for you.
