If you are a newbie in Financial planning and don't know how to shape your financial plan in right shape than here is the quick step wise financial plan for you. Kindly follow it's each and every step and your financial plan will be right in the nice shape. You actually don't need any financial knowledge for this nor you need to read and learn any complex things for it.
On our community, This is the commonest query. People want to do successful financial planning but don't know from where to start and that's why this 7 step basic financial plan is your starting point in the world of personal finance, financial planning and investments.
7 Step Basic Financial Plan
Step: 1 Buy a Pure Term Insurance Plan
Buy a pure term life insurance plan and cover your life adequately. Ideally it is advised to divide your life cover between 2-3 term insurance plans. Roughly you will need 8-10 times life cover than your annual income. So if your annual income is Rs.6 lakhs, you will need roughly Rs.50 lakh of ife cover. Many term insurance plans are available with riders. You may also buy a term insurance plan with riders. Riders in Term Insurance are of 5 basic types. Term insurance plan is usually for people who are married and have dependents (kid, parents and spouse). However, if you are single and don't have any dependents, no need to buy a term insurance plan and skip this step and proceed to next step. Once you get married and have dependents, fulfill this step.
1) Accidental Death Rider 2) Permanent and Partial Disability Rider 3) Critical illness Rider 4) Waiver of Premium Rider 5) Income Benefit Rider
Best Term Insurance Plans India
Step: 2 Get out of Junk Insurance Plans
Junk insurance policies are the unhealthy combination of insurance cum investment. The examples of junk insurance policies are - ULIPs,Pension Plans, Child Future Plans, Endowment Plans, Whole Life Insurance Plans, Money Back Insurance Plans and all the other type of insurance products where you get something on maturity. These financial products are the number 1 killer of your overall financial plan. So stop paying further premiums in these policies and get out of them immediately. Don't argue like - but I will just get 10% back, I will loose most of my money, the Surrender value is too less..etc.. Just get out of this garbage first. If you have never invested in any such financial products, skip this step.
Step: 3 Buy a Family Floater Health Insurance Plan
Buy a good family floater health insurance plan and cover all of your family members under it. If you are living in metro city of India (Mumbai, Pune, Hyderabad) than 5 lakh of cover will be good enough and if you are living in non-metro city than 3 lakh of cover will be enough. However, the more is better. You may also buy a Top-up health insurance plan and expand the cover of your health at an affordable premiums. It is also advisable to buy a good critical illness rider stand alone or with a health insurance or may be Accidental insurance plan. Here is the simple formula for it.
Health Insurance + Top-up health insurance plan + Critical illness Rider + Accidental Health Insurance
Best Health Insurance Plans India
Step: 4 Build Emergency Fund
You should have at least 3-6 months of your monthly expenses as an Emergency fund in your bank savings account or in Liquid Funds or Liquid Plus Funds. Emergency fund prevents liquidation of your long term investments during the time of any financial emergency like job loss, medical emergency...etc..
Step: 5 Start Systematic Investment Plan (SIP)
You should start SIP in 3-4 good Equity Diversified Mutual Funds with a time horizon of more than 10 years. This is the key step of your overall financial plan. This step will build a wealth for your long term financial goals like your own retirement and child's education and marriage and various other long term financial goals.You can expect 15-20% compounded annual returns from the equity funds. So Download the Compound Interest Calculator from the internet and play it with to decide your final monthly SIP to build certain wealth for your various long time horizon financial goals. Consider the Inflation while calculating your long term financial goals.
Best Mutual Funds India
The Principles of Mutual Fund Investing
Step: 6 Invest in Public Provident Fund (PPF) and Equity Linked Savings Scheme (ELSS) to Save Tax
PPF is the best tax saving instrument. ELSS is another good option. Invest in these financial products to save tax under Section 80C. You can also Save Tax Beyond 80C by using various financial products like Tax-saving infra bonds (Section 80CCF).
Step: 7 Getting Out of Debt
You can't accumulate enough wealth if you don't get out of debt. So try to repay and get out of all types of loans say - Credit card outstanding, Home loans, personal loans, car loans and any other type of loans.
Net Worth (Wealth) = What you own (Asset) - What you Owe (Liability)
So to increase your net worth, you will have to increase assets and reduce the liabilities. It is that simple. So now from your next pay raise, pay off your loan outstanding may be a part payment of your home loan or may be some other loan.
Also choose a Sound Financial Life. Nothing happens if you don't chose a sound financial life.
On our community, This is the commonest query. People want to do successful financial planning but don't know from where to start and that's why this 7 step basic financial plan is your starting point in the world of personal finance, financial planning and investments.
7 Step Basic Financial Plan
Step: 1 Buy a Pure Term Insurance Plan
Buy a pure term life insurance plan and cover your life adequately. Ideally it is advised to divide your life cover between 2-3 term insurance plans. Roughly you will need 8-10 times life cover than your annual income. So if your annual income is Rs.6 lakhs, you will need roughly Rs.50 lakh of ife cover. Many term insurance plans are available with riders. You may also buy a term insurance plan with riders. Riders in Term Insurance are of 5 basic types. Term insurance plan is usually for people who are married and have dependents (kid, parents and spouse). However, if you are single and don't have any dependents, no need to buy a term insurance plan and skip this step and proceed to next step. Once you get married and have dependents, fulfill this step.
1) Accidental Death Rider 2) Permanent and Partial Disability Rider 3) Critical illness Rider 4) Waiver of Premium Rider 5) Income Benefit Rider
Best Term Insurance Plans India
Step: 2 Get out of Junk Insurance Plans
Junk insurance policies are the unhealthy combination of insurance cum investment. The examples of junk insurance policies are - ULIPs,Pension Plans, Child Future Plans, Endowment Plans, Whole Life Insurance Plans, Money Back Insurance Plans and all the other type of insurance products where you get something on maturity. These financial products are the number 1 killer of your overall financial plan. So stop paying further premiums in these policies and get out of them immediately. Don't argue like - but I will just get 10% back, I will loose most of my money, the Surrender value is too less..etc.. Just get out of this garbage first. If you have never invested in any such financial products, skip this step.
Step: 3 Buy a Family Floater Health Insurance Plan
Buy a good family floater health insurance plan and cover all of your family members under it. If you are living in metro city of India (Mumbai, Pune, Hyderabad) than 5 lakh of cover will be good enough and if you are living in non-metro city than 3 lakh of cover will be enough. However, the more is better. You may also buy a Top-up health insurance plan and expand the cover of your health at an affordable premiums. It is also advisable to buy a good critical illness rider stand alone or with a health insurance or may be Accidental insurance plan. Here is the simple formula for it.
Health Insurance + Top-up health insurance plan + Critical illness Rider + Accidental Health Insurance
Best Health Insurance Plans India
Step: 4 Build Emergency Fund
You should have at least 3-6 months of your monthly expenses as an Emergency fund in your bank savings account or in Liquid Funds or Liquid Plus Funds. Emergency fund prevents liquidation of your long term investments during the time of any financial emergency like job loss, medical emergency...etc..
Step: 5 Start Systematic Investment Plan (SIP)
You should start SIP in 3-4 good Equity Diversified Mutual Funds with a time horizon of more than 10 years. This is the key step of your overall financial plan. This step will build a wealth for your long term financial goals like your own retirement and child's education and marriage and various other long term financial goals.You can expect 15-20% compounded annual returns from the equity funds. So Download the Compound Interest Calculator from the internet and play it with to decide your final monthly SIP to build certain wealth for your various long time horizon financial goals. Consider the Inflation while calculating your long term financial goals.
Best Mutual Funds India
The Principles of Mutual Fund Investing
Step: 6 Invest in Public Provident Fund (PPF) and Equity Linked Savings Scheme (ELSS) to Save Tax
PPF is the best tax saving instrument. ELSS is another good option. Invest in these financial products to save tax under Section 80C. You can also Save Tax Beyond 80C by using various financial products like Tax-saving infra bonds (Section 80CCF).
Step: 7 Getting Out of Debt
You can't accumulate enough wealth if you don't get out of debt. So try to repay and get out of all types of loans say - Credit card outstanding, Home loans, personal loans, car loans and any other type of loans.
Net Worth (Wealth) = What you own (Asset) - What you Owe (Liability)
So to increase your net worth, you will have to increase assets and reduce the liabilities. It is that simple. So now from your next pay raise, pay off your loan outstanding may be a part payment of your home loan or may be some other loan.
Also choose a Sound Financial Life. Nothing happens if you don't chose a sound financial life.
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