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Personal Financial Services OnlinePERSONAL FINANCIAL PLANNING
This division will tell you how you can plan your finance to meet your personal financial goals. Besides giving you valuable tips on how to manage your finances, it will, more importantly tell you what not to do while planning your investments and how you can achieve more from your earnings.
Understand that every investment involves a degree of risk for a given return. Minimising this risk and getting the maximum benefit from your finances is what personal investment planning is all about.
While investing, you need to take into account various factors such as the range of investment, options available, the level of risk you are willing to take, the returns you expect and the time period for which you remain invested.
Planning your personal investments will help you plan your finances to meet your needs, responsibilities and take care of unforeseen events such as an accident or death. This will ensure your future is secure once you retire. Above all, if you plan your finances properly now, you will be able to lead a comfortable life and maintain your current standard of living post-retirement.
Since your risk taking ability decreases as you grow older it is necessary to plan your financial goals earlier, so as to easily achieve them.
The following table will help you assess where you stand and assist you in planning your future investments.
How Do I Plan My Investments?
While planning your investment, be clear about these aspects :
- The assets you wish to acquire in future
- The time period for your investment
- Your age
- Your risk taking ability
- Your income
- Your expenditure
Rising Costs
- And how you can deal with it.
Inflation.
What is it?
Inflation, in simple terms, is a rise in prices. Any rise in the prices of goods and
services would reduce your ability to spend.
The INFLATION factor
This helps you to assess the value of a certain amount of money at a specific time
period.In order to know what the value of a certain amount of money would be after a
specific period of time, you only have to multiply the figure by the INFLATION factor
(from the table below).
| Inflation (Yrs.) | Factor (at 8%) |
| 5 | 1.47 |
| 10 | 2.16 |
| 15 | 3.17 |
| 20 | 4.66 |
| 25 | 6.85 |
For example, a saree that costs Rs.1000/- today, would cost Rs. 6850/- @ 8%
p.a. inflation rate 25 years hence.
Cost = (present value * INFLATION FACTOR) i.e. (1000 * 6.85) = Rs. 6850/-.
HOW MUCH SHOULD I
SAVE FOR MY RETIREMENT?
The pretax income I need in 1998 to live comfortably is Rs.50000 (A)
My current age is 50 (B). I will retire at age 60.
The number of years of post-retirement life is 15 (C)
I think inflation will average 10 % (D) each year until I retire. My cost of living will double every 7.2 (E) years
[where E = 72 divided by D ]My cost of living will double 2.08 (F) times between 1998 and the year I retire.(where F = E divided by C.)
My income in the first year of retirement will be Rs.1,38,600 (G) [where G = (1+F) * A * 90%]
Note: "72" and "90%" are constants.
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