Do you have a financial plan?

I was wondering how many people that come to this forum have ever thought about financial planning. I know a lot of people who have no plans atall and do not even want to think about it and I ask them what would you do if one day your income stopped for some reason or your business tanked and they do not have an answer because they have never though about building a bright future without having to be a part of the rat race.

I would love to hear from members about what they invest in and what their future plans are regarding retirement.

I have a financial plan now. I delayed it far too long but then better late than never. It is better to start as early as possible. Like those of you who are working somewhere, there is an annual goal setting (KRA/KPA) and at the end of the year there is an appraisal, you should do the same. Here are some tips from my own experience (in the order of importance):

1. Plan adequate insurance cover. It should be 25 times the annual gross pay. Go for pure term insurance instead of "money-back/endowment" plans.
2. Next, plan a health cover. Here if you start early, there is a lot of benefit due to low premia, etc. Besides, you will have no "pre-existing" diseases (hopefully). Get a personal health insurance even if the employer offers you one. Note that if you are 25 or below, you can be covered in your parents' schemes but not after. For instance, have an insrance plan of 3 lakhs to 5 lakhs per person per year. This insurance will cost about 15K to 45K per year (depending upon ages of family members).
3. Alongwith the health plan, also have a top-up health insurance for full family. Top-up insurance is like the spare wheel of your car; when one tyre goes flat you switch to the spare. For instance, have a top instance of 6-10 lakhs with a deductible of your basic insurance. If your basic insurance is 5 lakh per person, have a top of 10 lakhs with a deductible of 5 lakhs. This insurance will cost a mere 4-5K per year.
4. If you have old parents, they may not get insurance (unless they have something on their own). Keep a sum of Rs. 5 lakhs per parent aside for medical emergencies. This is as per today's prices; keep revising this year after year.
5. If you have children, correctly asses the education needs, marriage needs, etc.
6. All work and no play makes Jack a dull boy. So plan for vacations, outings, and such major fun activities. For instance, you may want to take a vacation abroad when kids are older. Start at today's prices and adjust for 6-7% inflation year over year.
7. Plan for retirement. Set an age. Then check your monthly expenses today. If you are unmarried, still check your family's monthly expenses on regular items such as groceries, standard/regular medicines plus doctor visits, utilities (elec/telephone/mobile/gas), servants' payments, local govt. taxes such as corp tax, hsg. sco. charges, occassional outings/eating out/entertainment, personal insurance premia incl. health, and finally transportation (petrol/diesel, verhicle insurance/maintenance)
8. Add all of the above to come to a annual need.
9. Adjust the above figure for inflation at the time of your retirement. For example, if the above total is Rs. 25,000 per month, then 20 years from now, it may be close to 70,000 at 6% inflation.
10. Figure out a way to make a corpus to make your final amount needed to live as per your standards till the age of retirement. Keep a life expectancy of 80 years at the minimum for male and 85 years for female (my own theory).
11. Start saving and investing. Note the equation: Income - Savings = Expenses. Invest in stocks or mutual funds (if you are not comfortable with stocks). Keep a long term horizon. Do not jump into a bull rally and neither panic and exit in a bear phase. Keep investing and insist the financial discipline.
12. The above are just a few mantras. There could be, nay, will be, many other.

Once again, keep this in mind:

Income - Savings = Expenses (right)

i.e., set aside money for savings/investments and the rest is for your expenses

and not ...

Income - Expenses = Savings (wrong)

Coming back to original post, I have started following all or most of the above. I invest in mutual funds mainly (equity as well as debt). My current ratio is 65% equity funds, 35% debt funds. I have got rid of all loans except house loan. House loan will also end in Dec-14. I invest over 50% of my monthly income and 25% goes into payment of EMIs. The rest is set aside for expenses. I have set aside a large corpus enough to fund my son's education, in case he gets an admission to a university abroad. I have also planned for his marriage expense and set aside an (every year) inflation adjusted sum for holiday abroad some 2/3 years down the line.

Originally Posted by just4kix

Income - Savings = Expenses (right)

i.e., set aside money for savings/investments and the rest is for your expenses

and not ...

Income - Expenses = Savings (wrong)

This is something a lot of people understand and know is the right thing to do but it is not an easy thing to do in practice especially for those people who are young and also those who dont make a lot of money or shall we say not enough to meet the basic needs. I understood this years ago but it was hard to follow in practice mainly due to my expenses going through the roof thanks to expensive habits but I have now learned to stay disiplined for the last few years.

Originally Posted by Admin

This is something a lot of people understand and know is the right thing to do but it is not an easy thing to do in practice especially for those people who are young and also those who dont make a lot of money or shall we say not enough to meet the basic needs. I understood this years ago but it was hard to follow in practice mainly due to my expenses going through the roof thanks to expensive habits but I have now learned to stay disiplined for the last few years.

Yes. It is near about impossible to follow that equation, especially in the circumstances you mentioned. The young and the restless want the best things in life. The middle aged struggle to meet the regular expenses. The more aged (but earning) are bogged down by dependent old parents, young and restless teens, etc. The cycle continues. It needs very steadfast resolution to break the shackles.

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Just one clarification. It is possible for a person to take medical insurance in the name of parents. In fact the Income tax Act allows additional deduction for this purpose.

Originally Posted by panchabhut

Just one clarification. It is possible for a person to take medical insurance in the name of parents. In fact the Income tax Act allows additional deduction for this purpose.

Why would you want to take medical insurance in the name of parents? This will increase the premium. Besides you may not get the income tax exemption - your parent (first holder) will get it.

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He probably means that you can buy insurance for your parents and claim tax benefits for that. I am not sure if that's how it works.

Originally Posted by just4kix

Why would you want to take medical insurance in the name of parents? This will increase the premium. Besides you may not get the income tax exemption - your parent (first holder) will get it.

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because paying 6-7000 a year is much better option than keeping 5 lakhs in idle funds.
and as far as income tax benefit is concerned, the certificate for claiming the benefit is issued in the name of the person paying the premium. there is no concept of "first holder" for mediclaim.

The Deduction that can be claimed under Sec. 80D at the time of filing of income tax return is the sum of the following, or actual premium, whichever is less:-
In case the payment of medical insurance premium is paid by the assessee for himself, spouse, dependent children – Rs. 15000. In case, the person insured is a Senior Citizen, the deduction allowed is Rs. 20,000
In case the payment of medical insurance premium is paid by the assessee for parents, whether dependent or not – Rs. 15000. In case the parents of the Assessee are Senior Citizens the deduction allowed under Section 80D is Rs. 20,000
The benefit for mediclaim on Parents is in addition to the benefit for self/spouse/dependent children.

note that Service Tax also is levied on the amount paid as Insurance Premium. However, the service tax paid on medical insurance premium is not allowed as a deduction under section 80D. Deduction under section 80D can be only claimed on the amount paid as Medical Insurance Premium and not on the service tax levied thereon.

Thats new for me I have never had any insurance so never really had a chance to look into what deductions we could claim. I do claim the Rs1 Lakh deduction that we get by buying ELSS and every one in the family does. Just that no one in my immediate family has medical insurance or life insurance. Its some sort of taboo to have medical insurance.. There is this thing that if you get treated for free its not good for "karma" so I dont necessarily believe in the theory but still never felt a need for insurance. They only insure you for a particular sum so if its some major expense you are pretty much on your own right? I would actually like to know if there are medical insurance that cover all expenses regardless of the amount.. Are there any?

And long term care. I dont really mind paying a heavy premium if there is such an insurance available. I just never asked.

@admin, you are making a huge, nay colossal, mistake in not having medical insurance. Medical treatments and hospitalization costs are escalating every day. Such cost will wipe out your liquidity more quickly than the time it will take you to go thru any thread on the forum. I suggest that you have a medical insurance for minimum 5 lakhs per family member. Look at plans from Apollo Munich or Star Health.

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I will call a few companies and see what they have on offer.

@admin
if you take a health plan for multiple persons in the family together, some insurers are ready to offer a "family floater". That is a better option. Like say for a family of 4, Rs.5 Lakh per person plus a family floater of Rs.5 Lakhs. The family floater is not person specific so can be applied to any member of the family as per need. So, effectively, for one person, if the total bill is say Rs.8 lakhs, the person specific Rs.5 lakh plus Rs.3 lakh out of the family floater is paid by the insurer and your total cost gets covered.

Alright thats some good information there. I haven't called anyone yet. Which insurer do you recommend? My parents do not need insurance as they are taken care of by the central government although they don't really use that facility.

Originally Posted by Admin

Alright thats some good information there. I haven't called anyone yet. Which insurer do you recommend? My parents do not need insurance as they are taken care of by the central government although they don't really use that facility.

Both Apollo Munich and Star Health are good providers. You can look at respective websites and even buy online. While buying health insurance look out for:

• Deductibles, if any?
• Any cap on room rent? The whole hospital fee structure depends upon room type/rent. Doctor fees, charges, treatments' fees, ICU/CCU charges, etc. are all proportional to this. If there is a cap on room rent, you may be denied part of the medical expenses if you opt for higher room.
• Networked hospitals. Check whether your nearby and preferred hospital is part of the network. In metros, if the super-speciality network hospital is 30 km away from residence, it will raise logistics issues.
• Ambulance cover
• Day-care and out-patient cover
• Pre-existing ailments and cover? Apollo does not offer any cover on pre-existing ailments such as diabetes, hypertension, etc. Star health covers it after 4 years (first four years there is no cover)
• Look at all exclusions with a magifying glass.

Its so important to have a financial plan, its something which I had never thought of or came into my mind! Thinking everything is going very well.....but you dont always stay secured with a job or expenses staying the same, so its important to have some kind of plan for your finances. Basically save save and save, i think the earlier someone learns this the better, I do now....better late than never...

I still dont know about the stock market, but investment in the stock market is good as mentioned by J4K.

Apart from the current investments in equities and real estate, I'm planning to start investing in the PPF by SBI from this year onwards. Please visit the wiki link to read more about its benefits. Cool stuff!

I liquidated all the investments in Gold ETFs when it reached around Rs. 31k and re-invested that amount in real estate.

My family already had medical insurance cover since past many years and I claimed its benefits during my ankle's surgery few years back. Now, just paying back to them in terms of annual premium (You see admin.. you always pay back.. so not a bad karma at all ) and keeping my health covered as well.

Now that I'm married, I'm going to take a Life insurance cover (term based) soon.

P.S.: I had taken only 33% of the total Real-Estate investment as house-loan.. Not sure whether I should re-pay it soon or drag it... Let's see how it goes!

If you are responsible enough with your money then I believe PPF is not for you. PPF in my opinion is for those people who end up spending money they have access to. If you have the patience to stay invested in the stock market for decades then I would say ELSS is a better option then PPF in the longer term. Yes you get guranteed return but even investing in an index ETF would give you better returns and if it is for saving tax there is nothing better then ELSS.

Thanks for the suggestion, Admin.

I'll do a bit of research and if I see an opportunity of receiving more than 10% (compound interest) annually in return from ELSS in long term, then why not.. I'll probably take that route!

P.S.: More than 10% cuz there is more risk involved in ELSS than in PPF.

PPF has not beaten inflation in the last 5 years as per the wiki link you provided in your earlier post. What is the purpose of such an investment that is not capable of beating inflation?

If you take just last 5 years into account, forget about inflation - ELSS hasn't even beaten PPF.

According to Value Research, a mutual fund tracking firm, the ELSS category has delivered a mere 1.28 per cent in the last three years, and 4.13 per cent in the last five year.

Source: Economic Times; April 13, 2013.

P.S.: If I've to give my money to another fund manager, he should assure me near to guaranteed returns... Else I'm happy investing in equities myself.

P.P.S.: If ELSS is sooo good and I've the money, I'll probably invest in both PPF and ELSS,

Originally Posted by itsmemad

Apart from the current investments in equities and real estate, I'm planning to start investing in the PPF by SBI from this year onwards. Please visit the wiki link to read more about its benefits. Cool stuff!

I liquidated all the investments in Gold ETFs when it reached around Rs. 31k and re-invested that amount in real estate.

My family already had medical insurance cover since past many years and I claimed its benefits during my ankle's surgery few years back. Now, just paying back to them in terms of annual premium (You see admin.. you always pay back.. so not a bad karma at all ) and keeping my health covered as well.

Now that I'm married, I'm going to take a Life insurance cover (term based) soon.

P.S.: I had taken only 33% of the total Real-Estate investment as house-loan.. Not sure whether I should re-pay it soon or drag it... Let's see how it goes!

LOL.. I came back to this forum to confirm at what levels I liquidated my gold investment. I remember I started an SIP around 2009 and it doubled within 4 years from my starting rate of around Rs. 15K..

Any of you think that Gold will reach around Rs. 80K within 4 years from now? I think so.. cuz last time also it propelled during and after the recession.. We will see in 4 years.