The evolution of parental tutelage has achieved a frenzied pace. Children’s lives are vastly different from what they were just a few years ago. As if the times weren’t changing fast enough, social media and the tech industry at large have pushed the boundaries further. All this makes it quintessential for parents to teach their children basic financial literacy. 

The consumption economy incentivizes poor financial choices. Frivolity and excesses are deemed natural by brands and influencers on social media. Online marketplaces do serve needs but create an insatiable desire for more. A child acting alone on these platforms is a vulnerable being that needs to learn good money habits.

This is not an alarmist message deterring you from innovation. This is rather an attempt to highlight just how important it is for parents to teach their kids about finance. Money is everywhere, and its knowledge is no less important than grammar, or arithmetic, or the lives of microorganisms. 

Besides, you are not alone if you don't like talking to your kids about money. The following pointers are designed to help you initiate the process.

Fix the barriers 

Parents must step out of the traditional role of caregivers and embrace determined instructional responsibilities. School curriculums are yet suffering from a dearth of materials on financial literacy. The modern-day also allows for greater economic opportunities due to widely available credit, blockchain, cryptocurrencies, and related developments.     

Children as old as seven are capable of learning the basics of money: savings, budgeting, and spending. While teens can be introduced to the world of financial markets, and important topics like inflation and macro-trends. Explain your intentions clearly, and ease into the process thereafter. 

Inculcate healthy habits

Build a culture around savings. Impress upon your children the advantages of compounding and how money makes money. Children form their outlook towards money independent of their parents. Ask your child if they’d like to have one candy right now or three tomorrow. Their answer might be an indication of their future money behavior. 

The time a parent spends with their child can significantly determine if an early predisposition will translate into a problem later. When giving lessons about wise spending habits, take care to not go on a shopping spree or lavish your child with gifts. Explain your own financial choices and habits to lay out the advantages of a disciplined life. 

Promote enterprising undertakings 

Concepts like income and the importance of having a steady cash flow can be depicted by real-life exercises. Try giving your children small tasks in exchange for an honorarium. Promote entrepreneurship or just a basic understanding of business by explaining the motives behind marketing campaigns and value systems. 

You can also consider enlisting help from an interactive medium. There are plenty of fintech start-ups working in financial literacy for school kids. 

What’s in it for you? 

Besides being a good parent, making your kids financially literate is also about shoring up your own knowledge. This is parenthood's way of offering an opportunity to better your financial discipline and become a role model for your kids. Be a part of your child’s financial journey and come out a better person yourself. 

You must make sure to keep the process fun and engaging. Finance can quickly become boring for a kid that’s yet to enter the world. But with your help, children can do much more than just learn about finance. They can maneuver it to their needs, and bend it to their plans. And who knows? Maybe your child will become a top investment advisor as well.   

Disclaimer

This blog is meant for educating people about the importance of the right financial planning. The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.  It is only intended to provide education about the financial industry. Consult your financial advisor to get personalized recommendations based on your life circumstances. 

About Rajiv Nair

Rajiv Nair co-founded Finshield Investment Advisors after successfully managing several large clients and businesses in the financial services industry for over 15 years. Rajiv is a Certified Financial Planner who believes – ‘Any amount of effort in wealth management is worthless if at least a part of it is not usable within your lifetime’. He is known to be steadfast in his Investment philosophy and an avid reader on diverse subjects. Learn more about him here Rajiv Nair | LinkedIn

No other phrase in finance is as ubiquitous today as ‘Do your own research’ or simply, DYOR. It is the hue and cry of almost every voice in modern finance. No more eggs in a basket, no buy what you know, none of the other old banalities of financial literature. Now, everything is all DYOR. 

Research and financial literacy are essential parts of a being. Everything is just a few clicks away: no data too remote, no information that’s unattainable. 

At a time like this, it becomes important to consider the merits of hiring a financial planner. When research is as easily available, and products more accessible than ever, does it make sense to hire a financial advisor? Or can you go solo in money matters, and build your dream portfolio yourself?   

Consider your position in respect to the following points, and decide if an investment advisor holds value for you. A quick self-assessment test at the end will also help you make a better decision. Here we go! 

1. Investment size 

The size and frequency of your savings is a crucial aspect of personal finance. If your investment size is smaller, you should look to invest in easier products like mutual funds. Researching mutual funds is easier than individual stocks, and much more structured. But if your investment size is enormous, a financial planner could earn you a higher return.

2. Time on-hand

Research is the most important part of financial planning. Research is what sets you apart from those swayed by trends. Even if you decide to hire a financial planner, it would be a great asset to know and understand the markets. Your research will make your planner’s guidance twice as valuable. 

3. Risk capacity 

Much also depends upon the risk that you are able and willing to undertake. The risk capacity is directly affected by the number of dependents and future expenses on their account. Other factors include the source of income, the holding period, and upcoming withdrawals and expenses. 

4. Investment goals

In case your investment goals are limited to earning a modest return, you could try investing without a planner. But if you want to beat the markets and really make your money work for you, a financial planner is the way to go! With the right advisor, your returns will far outweigh the cost incurred. 

Self-assessment test to determine if you need a financial planner! 

1. Is financial freedom your primary investment goal? Do you wish to withstand personal troubles or macroeconomic shifts, and live worry-free? 

Yes? Hire a financial planner. 

2. Do you constantly keep money in cash or idle at the bank? Have you thought about securities investment but never went through with it for some reason? 

Yes? Hire a financial planner. 

3. Do you have a sizable asset base? Or do you wish to build one before retirement?

Yes? Hire a financial planner. 

4. Have you tried managing your finances and found it too overwhelming? Did you get too preoccupied with your finances and missed out on other important things like work and family? 

Yes? Hire a financial planner. 

5. Do you have the knowledge to value assets correctly, avoid common trading mistakes, and understand market shifts? 

Yes? What are you? A financial planner? 

Disclaimer

This blog is meant for educating people about the importance of the right financial planning. The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.  It is only intended to provide education about the financial industry. Consult your financial advisor to get personalized recommendations based on your life circumstances. 

About Rajiv Nair

Rajiv Nair co-founded Finshield Investment Advisors after successfully managing several large clients and businesses in the financial services industry for over 15 years. Rajiv is a Certified Financial Planner who believes – ‘Any amount of effort in wealth management is worthless if at least a part of it is not usable within your lifetime’. He is known to be steadfast in his Investment philosophy and an avid reader on diverse subjects. Learn more about him here Rajiv Nair | LinkedIn

The insurance industry is still growing in India. As per the analysis of industry data and government data, 988 million Indians do not have any kind of life insurance to protect their family in the time of need or during an unfortunate event. That means, almost 75% of our country’s population is uninsured or underinsured. People in India avoid buying life insurance despite being aware of its importance and necessity. Many people consider insurance as an expense and hence avoid buying it at the right age. So, the question that arises more often is why do we procrastinate with the idea of buying insurance? Let’s take a look at some of the major reasons.

• Denial to imagine unthinkable happenings

None of us would like to imagine the unfortunate happenings or losing our loved ones. Buying a term insurance does not mean we need to anticipate the worst but to safeguard the family at least financially if not emotionally from an untoward event. We need to be aware of the uncertainties of life and be prepared for it as soon as we start earning to protect our family. Nowadays, people at a young age in their 20s and 30s are succumbing to lifestyle illnesses like diabetes, cardiac problems, etc. But, why do we wait for life-changing events to realize the importance of insurance and to make a smart financial decision? Our ignorance towards the financial risks is one of the major reasons that make us allergic to insurance.

• Young age and good health

When we are young and in good health, the thought of buying insurance never crosses our minds. But we fail to understand that age and good health are not permanent. As age increases, health deteriorates. When it comes to buying insurance, with the increasing age and deteriorating health insurance gets expensive. You can buy higher coverage with comprehensive and extensive features at a lower price when you buy them at a young age. It is our misconception of ‘nothing will happen to me’ that makes us fail to take notable consideration of term insurance requirements in our life at an early age. 

• Relying on employer-sponsored insurance 

Most of the companies cover their employees under group insurance plans. We rely on those insurance plans sponsored by employers without understanding whether the coverage limits are sufficient for the family or not. Even if it is adequate, this coverage is only available during our working years. Once we retire, we will find it difficult to get health insurance due to our own health condition. Failing to understand the requirement of adequate insurance coverage is mainly because of a lack of knowledge and lack of proper financial planning. 

• Overwhelmed by the insurance plan choices

With multiple insurance companies operating in India offering a wide variety of insurance plans, it gets challenging and complicated for us to choose the right and most suitable one. It could also lead us to think that it would be easier to get one whenever needed. It is important to first assess our insurance needs and then buy accordingly.

• Misconception on insurance cost 

Most of us avoid buying insurance thinking that the coverage is highly expensive, which is a clear misconception. But it is important to note that term insurance plans that provide life coverage and pure protection are cheaper in comparison to developed countries. Though we incur an expense today, our family will be financially secured during any unfortunate event. Failing to understand that insurance is an essential cost for all of us is one of the major reasons to be allergic to insurance.

Insurance is an important aspect of any financial plan. It is important to be adequately insured before we start our financial planning journey to reach financial independence. When we start understanding the necessity of insurance to protect our family, their goals, and needs, and when we start understanding the insurance products better, we can make a smart financial decision. 

Not realizing the importance of insurance is what makes us allergic to the product that purely is designed for our protection. It is crucial for us to understand the role insurance plays in the financial journey by shielding our dependents against the financial risks that may arise due to unforeseen life events. We also need to understand that buying insurance at a young age when we are healthy can be extremely cost-effective and more beneficial in terms of features. Let’s stay adequately insured and make smart financial moves!

Disclaimer

This blog is meant for educating people about the importance of the right financial planning. The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.  It is only intended to provide education about the financial industry. Consult your financial advisor to get personalized recommendations based on your life circumstances. 

About Rajiv Nair

Rajiv Nair co-founded Finshield Investment Advisors after successfully managing several large clients and businesses in the financial services industry for over 15 years. Rajiv is a Certified Financial Planner who believes – ‘Any amount of effort in wealth management is worthless if at least a part of it is not usable within your lifetime’. He is known to be steadfast in his Investment philosophy and an avid reader on diverse subjects. Learn more about him here Rajiv Nair | LinkedIn

Everyone wants to achieve financial freedom early in their life. Financial independence is not just having money or getting rich, it is much more than that. If you have reached a status where you have enough income to take care of your comfortable living for the rest of your life without having to earn, then you have achieved financial independence. To achieve this, you need to have careful planning and take the right steps. How do you know if your financial independence is at risk? Are you moving away or towards your financial freedom? To find the answer, here are some of the important questions you must ask yourself. If your answer is ‘YES’ to most of the questions, then you are definitely on the right path towards achieving financial independence.

• Do you have adequate life insurance coverage to protect your family and dependents in case of an unfortunate event? Your life insurance coverage should be decided based on your current financial situation, future earning potentials, financial obligations, and current liabilities. Have you taken all these points into consideration to choosing the coverage?
• Do you have an adequate health insurance policy for yourself and for every member of the family or your dependents?
• Do you have the contingency funds to meet emergency financial requirements? Have you ever faced urgent financial emergencies and used contingency funds to meet the need? If your answer is ‘YES’, then you are on the right path on your financial journey towards achieving financial freedom. If your answer is ‘No’ and you have not set up an emergency fund yet or you have taken a loan to meet the urgent financial requirement, you need to focus on your financial planning without any delay.
• How many times have you withdrawn or liquidated your savings or investments meant for long-term financial goals such as retirement to meet urgent liquidity needs?
• Do you regularly save at least 20% to 25% of your income for your future goals without fail? 
• Have you restricted your discretionary expenses to a maximum of 20% of your income?
• Do you have a solid financial plan and long-term investment strategy to achieve your financial goals? Have you assessed your risk profile? Do you believe in diversifying your investments into different assets and products like equity, mutual funds, exchange-traded funds, gold, and REITs (Real Estate Investment Trusts) not just by restricting to fixed deposits and other fixed-income instruments?
• Do you believe in investing in equity for the long term? If ‘YES’ you can expect to build a good amount of wealth over the long run with the magic of time and compounding effect. If you trade in the stock market or equities, then you may need to reconsider your investment strategy for the long-term goals.
• Do you pay your debt obligations and credit card dues on time?
• Have you created a solid budget and spending plan to get track of your income flow, and expenses and to hold control of your spending habits to save more?
• Are you well aware of the investment products that you are choosing? Did you try to understand the features of financial products that you are investing in and what could be the impact of those products on your future financial goals?
• Do you regularly review the performance of your investments and explore the new investment opportunities that come up in the market?
• Are you working on your passion or hobbies to turn them into passive income sources?

If most of your answers to these questions are ‘YES’ then you are on the right track and moving towards achieving financial independence. If your answer is ‘NO’ to any questions, then you are moving away from achieving financial freedom. All you need for making the money work for you is time and the right plan to build wealth and achieve financial freedom. Once you achieve this, there is no longer a need to work for money. Having a comprehensive and solid financial plan is extremely important to achieving financial independence. 

All you need to do is plan properly and make goal-based investments, keep track of your investments, monitor, and review on a regular basis along with keeping a check on your debt-income ratio. To save more towards your goals, you need to keep your debt obligations low. Save for contingencies and be adequately insured to have protection against uncertainties. A disciplined approach towards savings and starting to save early makes a huge difference to your journey towards financial independence. Right direction and goal-based financial decisions with clarity are key to moving towards financial independence. 

Disclaimer

This blog is meant for educating people about the importance of the right financial planning. The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.  It is only intended to provide education about the financial industry. Consult your financial advisor to get personalized recommendations based on your life circumstances. 

Life is uncertain, you should always be prepared and expect the unexpected. Embracing a positive mindset can always help you deal with any difficult situation. And, the positive mindset and confidence come as a result of solid planning. If you are not well prepared, any unexpected event like a sudden loss of job or medical emergencies in the family or sudden need of home repair or any such unavoidable expenses can result in financial setbacks, which can be temporary or permanent setbacks. There are many ways to plan for unexpected situations such as availing of life insurance, health insurance, or personal accident insurance, etc which are all part of your financial planning. But, the first step of the preparation is to build an emergency fund.

What is an emergency fund?

An emergency fund is a savings that can be easily accessed and is in liquid form to utilize during emergencies. For example, in the unfortunate event of sudden job loss, you can use an emergency fund to cover your loan EMIs and living expenses. An emergency fund is built to deal with a financial crisis during rainy days. The financial experts say you should have at least three to six months of your income set aside as an emergency fund. 

How much of an emergency fund to set aside may vary from person to person depending on your financial condition, regular expenses, and lifestyle. For example, if you are a family of double income, you may not need to set aside funds for emergencies as much as the single income family needs to. However, irrespective of ‘how much to be saved for an emergency’ it is essential to build an emergency fund for everyone for a smooth financial journey.

Why is it important to build an emergency fund?

An emergency fund is nothing but a safety net against the uncertainties that lie ahead. The ultimate reason to have an emergency fund is to gain peace of mind against any unpleasant events that may result in financial instability. There are various reasons for which it becomes important to build an emergency fund. Let’s take a look at some of the key importance of building an emergency fund:

To avoid high interest debt

When you have an emergency fund, there is no need for you to avail of additional credit such as using your credit card, availing a personal loan or high-interest payday loans, etc. Stressful events can be handled without having to take the burden of additional debt.

To deal with the sudden loss of employment

One may have to face ups and downs in their career path. Especially during the pandemic, one needs to be ready for pay cuts and temporary job loss. Setting up a contingency fund can be of great use to cover the expenses such as loan EMIs, fees for children’s education, insurance premiums, food, and rent, etc. 

To manage medical emergencies

Medical emergencies can hit anyone at any time. Uninsured medical emergencies can burn a huge hole in your pocket. Hence, having an emergency fund set aside for such uninsured emergencies is extremely important which can be utilized without disturbing your budget and savings.

To get through unexpected events without any hassle

Unplanned expenses can pop up anytime. Sometimes household repairs and vehicle repairs may run up to a few thousands and might be must-fixes for which you will need to have the contingency funds set aside as and when they come up. Unplanned travelling expenses are another major expense that can potentially put a hole in your wallet. If you are salaried, extra tax payments at the end of a financial year could also wreck havoc.

To adjust and stay within your budget

The first process to build an emergency fund is to create a budget. When you have a clear budget, you can easily set aside money towards your various goals and start investing towards them while setting aside a small portion of your savings towards the emergency fund. As a result, when you face  a financial storm, you can draw from the emergency fund that you have built instead of disturbing your monthly budget. In this way, you can easily deal with short-term financial instabilities.

To stop yourself from depleting your savings for major goals

When Faced with an unplanned event, most people either take loans or liquidate their existing investments to deal with the cash crunch. To keep your financial house in order and to reach your goals within the timeframe, it’s important to not deplete your savings that are meant for major goals.

It is not surprising that when life presents an emergency, it threatens your financial well-being and causes stress. If you're living without a safety net, you're living on the "financial" edge—hoping to get by without running into a crisis. Being prepared with an emergency fund gives you confidence that you can tackle any of life's unexpected events without adding money worries to your list.

Disclaimer

This blog is meant for educating people about the importance of the right financial planning. The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.  It is only intended to provide education about the financial industry. Consult your financial advisor to get personalized recommendations based on your life circumstances. 

About Rajiv Nair

Rajiv Nair co-founded Finshield Investment Advisors after successfully managing several large clients and businesses in the financial services industry for over 15 years. Rajiv is a Certified Financial Planner who believes – ‘Any amount of effort in wealth management is worthless if at least a part of it is not usable within your lifetime’. He is known to be steadfast in his Investment philosophy and an avid reader on diverse subjects. Learn more about him here Rajiv Nair | LinkedIn

Financial planning is a roadmap that guides you throughout your life towards financial freedom. Financial planning is an ongoing process for achieving future financial independence. It is important to create an effective financial plan that can address your current needs, match your present financial situation and help you create wealth for a secure future. For a beginner, it can get challenging to create a financial plan in the right direction. This article gives you some key strategies to ease the process of financial planning for beginners. Let’s take a look at some of the important steps for financial planning:

• Understand your current financial situation

Knowing your present financial situation is the first step to financial planning. Your current source of income, stability, and consistency of your earnings play a role in the planning process. Once you assess that, move on to your expenses and categorize them. Assess your savings, investments, and insurance, if you already have any. Knowing financial status is important to build a financial plan that is in sync with the current financial situation.

• Make budget and master self-control

Budget is an important financial planning tool that compares your income and expenses for the month and allows you to plan your finances accordingly. There are many budgeting apps available which you can use to create a budget. The first step is to calculate your monthly income from various sources and then create a list of monthly expenses by categorizing them as fixed and variable expenses. This process will help you identify expenses you might be able to cut down. Once you create a budget, the next important thing is to stick to the budget by mastering the art of self-control. It is quite challenging to hold back yourself from spending as it seems effortless to use a credit card in a second and buy impulsively. A simple formula is to first pay yourself before you spend so that you can secure your financial future.

• Identify and list down your financial goals

If you do not have financial goals, your financial plan becomes directionless. You need to first identify the goals that you need to achieve and then you can categorize them as short-term, medium-term, and long-term financial goals. For example, setting up an emergency fund, savings for your wedding and vacations can be your short-term goals, medium-term goals can be buying a car, a dream home, etc. and long-term goals can be retirement and saving for the higher education of your children, etc. Once you categorize the goals based on the time frame that you have for the goals, it gives you a path to plan your finances accordingly.

• Avail protection

Before you start planning your finances, it is important to secure your life and health (including your family) against unforeseen events. As insurance gives you an indispensable layer of protection against medical emergencies and unfortunate events like death and disability, it becomes imperative to choose the right cover and the right product. You can seek the help of an expert to choose the best product suitable for you. 

• Manage your debt

Managing your debt smartly is also an important aspect of financial planning. Debt includes your high-interest credit cards, personal loans, and other loans that can make you feel like you have more money to spend. Though availing of credit is not bad if you put it to rational use and manage it well without it having an impact on your savings and investments for the future.

• Assess your risk and invest wisely

It is important to assess your risk-taking ability and be aware of your risk profile before you go ahead and choose the investment products. Choose the investment options based on your risk-taking ability, return expected to reach the investment objective, and the investment time horizon.  For example, if you are saving for an emergency fund, a fixed deposit or liquid fund could be an ideal choice. If you are saving for retirement, a systematic investment plan (investing in equity mutual fund) or into direct equity is an ideal choice. Investing wisely and building the right investment portfolio also means diversifying your investments to manage risk to maximize return. More than anything, start investing early to get the benefit of the compounding effect to grow wealth over the long term.

• Monitor and review

Monitoring your investments and reviewing your existing investments to make changes and look for new investment opportunities is an important part of the financial planning process. As financial planning is a continuous process, constant monitoring of your portfolio and review to reap the maximum benefits out of your investments is extremely important.

• Seek the help of advisors

Financial planning can be a challenging task for beginners. You can seek the help of investment advisors who can make a comprehensive financial plan for you and extend complete support to have a smooth financial journey towards future financial independence. A good advisor could also be your coach to higher financial literacy. 

Have a solid financial plan that can help you manage and grow your wealth. A comprehensive financial plan acts as life-long support for an investor to help lead a healthy financial life. Plan effectively and follow through to achieve financial freedom.

Disclaimer

This blog is meant for educating people about the importance of the right financial planning. The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.  It is only intended to provide education about the financial industry. Consult your financial advisor to get personalized recommendations based on your life circumstances. 

About Rajiv Nair

Rajiv Nair co-founded Finshield Investment Advisors after successfully managing several large clients and businesses in the financial services industry for over 15 years. Rajiv is a Certified Financial Planner who believes – ‘Any amount of effort in wealth management is worthless if at least a part of it is not usable within your lifetime’. He is known to be steadfast in his Investment philosophy and an avid reader on diverse subjects. Learn more about him here Rajiv Nair | LinkedIn

There are various reasons to save money. Emergencies may arise anytime, for which you would need money. You would also need to set aside money for unexpected happenings, future fallbacks, and all major milestones of your life. Saving money today allows you to enjoy greater financial security in the future. Once you are convinced that you should save money for all these reasons, the next step is to start practising it. Improving the savings rate helps you reach your desired goal with ease. 

What is the savings rate?

Savings rate refers to the percentage of money that you save out of your total earnings or gross income. The higher the amount you save, the more money you accumulate for your long-term goals like retirement, children’s higher education, home buying or emergency funds, etc. When it comes to financial planning, the savings rate plays an important role. As you cannot control the other major factors that influence your investment success such as market conditions and investment performance, increasing your savings rate can help you achieve your goals smoothly.

Why is a high savings rate important?

Savings include investments for the long-term like retirement and also for short-term goals. Your financial progress depends on how much you are keeping aside for yourself every month. The savings rate is something that you can have complete control over by managing your expenses or by boosting your income. Hence, it is important to pay more focus on savings rate than just paying attention to how the market is performing. Thus, a high savings rate can be extremely important for your investment success and to maximize the wealth over the long term.

To understand the importance of a high savings rate, it is crucial to know how the savings rate is calculated and how it impacts your long-term goals.

Savings rate calculation

The savings rate is calculated by dividing your monthly savings amount by your gross monthly income. The amount that you save after all your expenditure including the tax outgo from your gross monthly income decides the rate of your savings. For example, your gross income for the month is INR 2,00,000 and you set aside INR 35,000 every month for savings/investment. Now, let’s calculate your savings rate.

Savings rate = Monthly savings amount / Gross monthly income

 = INR 35,000 / INR 2,00,000

 = 17.5%

Now, let’s see how your savings rate impacts your financial journey. Let’s say you are saving for your retirement goal. Two factors that we always consider for retirement planning are the time frame and the rate of return expected out of an investment option. But, the amount of saving that you do or your savings rate contributes more to your retirement planning. Let’s understand this with an example. Let’s say you are saving INR 20,000 towards your retirement out of your gross monthly income of INR 2,00,000. This means, your savings rate is 10%. If you invest 20,000 in a systematic investment plan for 25 years for retirement, it can build a corpus of INR 3.79 Cr at a 12% expected rate of return. Now, if you increase your savings rate to 15%, i.e., 30,000 invested in a systematic investment plan for 25 years, it can build a corpus of INR 5.69 Cr at the same 12% expected rate of return. With a high savings rate, you can maximize your investment success. 

Tips to maximize your savings rate

The following are some of the important tips to improve your savings rate:

•          Set a target savings rate

 Setting a savings rate should be the first thing before you even start with a spending plan. Instead of saving the extra money that is left after spending, it’s better to decide the amount that needs to be saved before you even plan your monthly budget. Once you set the target savings rate, you can trim your spending accordingly. For example, you decide to follow a simple 50/30/20 rule, wherein 20% of your income should be put aside for savings. You can save more if you want, but not less. Maximum of 50% towards necessities and 30% for other expenses. When you have this plan in place, you can create a budget accordingly.

•        Automate your savings

 When you automate your savings, a certain percentage of your income automatically gets saved even before you plan to spend it. Automatic savings options are many such as systematic investment plans, bank recurring deposits, etc. You can seek expert help to plan your finances based on your financial situation, future goals, risk-taking ability, return expectation, and time frame. 

•        Boost your income

 You can increase your savings rate just by cutting down on spending habits. You can also do so by boosting your income. Earning more is also a great way to save more money. Remember to avoid lifestyle inflation as you earn more, then only you would be able to save more. Your skills and earning ability are your greatest asset that can help you reach all milestones in your life successfully.

Seek expert help, create a financial plan and improve your savings rate to maximize your investment success.

Disclaimer

This blog is meant for educating people about the importance of the right financial planning. The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.  It is only intended to provide education about the financial industry. Consult your financial advisor to get personalized recommendations based on your life circumstances. 

About Rajiv Nair

Rajiv Nair co-founded Finshield Investment Advisors after successfully managing several large clients and businesses in the financial services industry for over 15 years. Rajiv is a Certified Financial Planner who believes – ‘Any amount of effort in wealth management is worthless if at least a part of it is not usable within your lifetime’. He is known to be steadfast in his Investment philosophy and an avid reader on diverse subjects. Learn more about him here Rajiv Nair | LinkedIn

Personal finance can be an intimidating concept. Knowing where to start with, how much to save for each goal, how much insurance to avail and how to pay off your debts etc, you need time, energy, and expertise. Most of the financial decisions that you make are life-shaping and are to supplement your long-term financial goals. Having a wholesome financial plan with a solid roadmap is thus important. 

Most of you may believe that you don’t need professional advice to handle your finances as there is plentiful information available on a digital platform. But, you need them as your coach for your future financial fitness as you may not always have the time and expertise to do it all by yourself. Yes, time is an important element, time is money! There is a cost to prolonged wrong investment choices or delayed good money decisions. Hence, if you are confused or do not know where you stand in your financial life, it is worth hiring a financial advisor who can get you on the right path. 

Here is why you need a financial advisor -

• To lay down SMART financial goals

 

Before you plan for your financial goals, it is important to identify your goals. A financial advisor helps you lay down SMART – Specific, Measurable, Achievable, Realistic, and Time-bound financial goals. A financial advisor will help you identify and understand your goals based on various factors such as income level, risk appetite, expectation on investment returns, etc. 

• To craft a wholesome financial plan

 

A good financial advisor will only make his recommendations after crafting a wholesome financial plan for your long-term financial future. The financial advisor reviews your current financial circumstances, then considers anticipated changes and the goals (short-term, medium-term, and long-term) to make an assessment. Accordingly, make a wholesome financial plan for you to achieve all the goals. 

• Help you eliminate emotional decisions

 

After crafting a financial plan for you to achieve your goals, a financial advisor strategizes your investments and chooses specific financial investment options to achieve those goals. The advisor makes an ideal recommendation based on your risk-return profile. A trusted financial planner helps you avoid irrational decisions driven by emotions as they weigh based on the suitability, the potential risk, and the return required to reach your goals.

• Helps you stay financially fit with constant monitoring and review

 

A financial advisor works very closely with you just like your fitness coach to always keep you on track and guide you. A financial advisor constantly monitors your investment portfolio, makes review and revise the investment strategy from time to time to keep it in line with your goals. 

With the help of a good certified financial planner, you can organize your finances and have a clear vision on your retirement savings, paying off or restructuring plan for your debts, insurance cover, plan for big expenses, and investment strategy for each of your goals, tax planning, and estate planning. 

Financial advisors are not just meant for sophisticated and wealthy people, everyone can seek professional advice for their long-term financial future. However, you probably do not need a financial advisor if you are just looking for one-time investment advice or just need inputs on a few investment options. 

If you decide to seek expert help, make sure to go with a ‘fee-only’ financial advisor as they put your best interest first. Fee-only financial advisors act as fiduciaries, whose only compensation comes from the fees that you pay. That means, they do not earn from the specific investment options that they recommend. You could be assured to receive unbiased, rational, and professional advice from a fee-only financial advisor. 

There is also an option of Robot advisors, which are virtual advisors who provide algorithm-based, automated advisory solutions. Though it is a cheaper option, fee-only financial advisory services provide you with skill and human supervision-based personalized services. It is worth hiring a financial advisor for greater financial security.

Disclaimer

This blog is meant for educating people about the importance of the right financial planning. The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.  It is only intended to provide education about the financial industry. Consult your financial advisor to get personalized recommendations based on your life circumstances. 

About the Author

Sangeeta is a banker turned writer, firm believer of ‘the pen is the tongue of the mind’, an ultimate book lover, blogger, and a devote mom. She enjoys cooking and gardening in her copious free time! She is a gold medallist in MBA finance and has over six years of experience in banking and wealth management before she started as a writer five years ago. Learn more about Sangeeta here sangeeta maskeri - Financial Content Writer - Freelance | LinkedIn

Evaluate your Current Financial Situation

Before you think of investing, get a clear picture of your present financial status. List out the entire reservoir you have such as salary, bank savings or investments like shares or unit trusts. Also make a list of financial obligations such as debts you owe, household expenses, credit card balances, taxes, insurance premiums and so on. Assessing your current financial health will help you get a better idea of where you are and where you want to be financially.

Assess your Risk Tolerance

According to experts, risk and reward always go hand in hand. That means, if there is no pain then there is no gain. Every investment is subjected to a certain degree of risk. Generally, higher the risk, higher is the potential return. If you have a long term financial goal, you are likely to get more potential return by carefully investing in asset classes of high risk like stocks and equity funds rather than restricting your investments to less risky assets. Risk tolerance can be assessed with the help of questionnaire tools available online. Knowing your risk appetite helps you choose the proper mix of asset classes. 

Determine your Financial Goals

Setting a financial goal is a crucial part of financial planning. Figure out your priorities and understand your investment objectives before you draw a plan. Think about your children’s education, marriage and your retirement life. Consider your future plans such as buying a property or a new house, starting up new business etc. Keeping your age and risk appetite in mind, fix up a time frame and value target for each goal. Prioritize your goals and start saving accordingly. 

Understand Investment Products

Once you are clear about your financial goals, next key step is to choose the right investment product. To make it work for you, you need to have clear understanding of the particular investment product. Being familiar with the intricacies of the products will help you achieve higher profitability along with accomplishing your objective. For instance, if you are looking for both life cover and potential return on investment, you can opt for ULIP (unit linked insurance plans). However, if you are looking for pure insurance plan, you can go ahead with a simple term insurance plan, which can cost you much lower. When you understand the product, you can make the right choice based on your need and risk appetite. 

Apply Diversification

Do not put all your eggs in one basket and if you have only one egg, find the safest basket within your reach to put it in. Spread your investments into various asset classes specially the ones that are not correlated. Diversifying the investment portfolio helps you strike a balance between risk and return. Have a proper mix of various investment instruments such as direct equity, mutual funds, bank deposits, bonds, Gold ETFs etc. based on your risk taking ability, investment time frame and the value requirement. Following your investment strategy is the key!

Consider Tax Implications

With the variety of tax sheltered and non-tax sheltered alternatives available today there are ample opportunities to create an investment plan to minimize taxes. Think about how this investment fits into your tax strategy.

The Bottom Line

Draw a financial roadmap, set your goals and choose the right mix of investments to achieve them. Consider your risk taking ability, return expectation and liquidity requirements before you get started!