Basic Financial Planning

It is been said and observed that financial literacy is POOR in India. People do earn, BUT how to manage earned money is a big question. How much to invest, how much to spend for a comfortable life, how to plan goals is a big question. Thanks to many new startups and initiatives by the government as well as private organizations that people have at least started to think about financial planning.

Many years ago, during my school time, one of my uncles (Marwadi) had casually taught me this. How to spend the earned money. The areas you should consider while spending. We must use the money wisely. I really liked it and I still remember the same.

I am not a financial planner or I do not have any specialization in the same. BUT, wish to share a few wise words which I learned. Along with my learning from my uncle, I have also included the leanings from experiences and understandings. I hope it helps.

Let us say, Rs. 50/- is your basic need which includes, Food, Clothes & shelter. So, anyhow you have to earn it. Spending on your basic needs should not be greater than 50% of your earnings. You have to keep this in mind and plan your spending’s accordingly. I am saying, 50% does not mean if you are earning Rs. 1Cr monthly, you should spend Rs. 50 Lac for Basic needs. But in a routine world, this should be the criteria.

Now the remaining earning must be distributed in the following areas.

Upgrade Skills — This one I recently understood. Once graduation is done and we start earning, we either think of going for a master's or just do nothing and be it the way it is. You must have seen in the IT field, that few people keep on learning new languages or technologies and something. This is termed as upgrading your skills. BUT many people do not do the same, thinking it costs higher and they do not have money to invest. BUT remember, this is an investment that will give you the highest returns. Instead of investing Rs. 10/- in savings to get returns of 10% -15%, you must invest in upgrading the skills to get returns of 100%. It includes spending on new books, new courses, online subscriptions (for learning and not entertainment). It must have a major portion of your investment amount.

Health and Sports — Basically it must come under the “Basic needs”. Along with food, clothing, and shelter, health is the basic need that needs to be taken care of. This should be considered not only for you but also for your family. If you are not disciplined enough to do exercise on your own, you must subscribe to Gym, Sports, Yoga, or whatever you like. But remember the all-time dialogue — Health is wealth.

Travel — It refreshes you. It helps you learn new ways of life. It is one of the great ways to explore life. Travel has its own benefits and one must give importance to the same. And understand, you cannot travel the world in one holiday. Traveling costs money & planning. Else, in day to day struggle, one may forget to travel. Even I experienced it for 3 years after engineering. I did not go out for a Holiday. I did visit many places across Maharashtra, India, and the world but all were business trips. BUT a Holiday, I could not take and one of the reasons was, I never planned it. It is very common that while earning your bread and butter, you just forget to live. You just forget to travel. BUT please plan it. Keep traveling.

Mutual Funds — Now this comes as “so-called true investments”. This is the new trend of the investment and one must start to invest in the same ASAP. It gives you a compounding effect and to get the most benefits, it must be started earlier. I prefer Mutual Funds among all as Gold, FD, Share Market, etc. As it invests in all these things on your behalf and you get the best results of all. And the investment amount is as small as Rs. 500/- per month. The plans themselves are for achieving your goals. You can select as per your need and withdraw accordingly.

Gold — We Indians are the biggest consumers of Gold. At every big phase of our lives, we need Gold to use it or to gift it. My marriage, my son’s / daughter’s marriage, my niece’s / nephew’s marriage, Akshay Tritiya, Dussera, Diwali, Wife’s demand, son’s wish, and whatnot. And every time, to buy the Gold in fluctuating rates is difficult. So, you should keep on investing in the Gold and utilize it whenever needed. It is one of the investments, which you will not break easily unless you are in big trouble. i.e. your assets keep on increasing

Share Market — This is a risky business. BUT, high risk and high gain. So, you must have some portion for which you can take risks and attempt for the high gain. BUT this is subject to your interest and knowledge and in this.

Emergency Fund — You should slowly keep the emergency fund in the bank and keep that minimum in the bank always. With the thumb rule, it is said that it should be 6 times your monthly expenses. You should keep a small portion aside and achieve the said amount.

FDs — I am not much in favor of this investment area. BUT it is recommended to have as additional to Emergency fund as you can easily withdraw the same. Though early withdrawal affects the returns, still you can utilize it that’s the main benefit.

Insurance — One of the important things. The early you do it, the less is the premium you need to pay. It is a lucky draw and the risk is of less amount. One should take it to secure their family.

Mediclaim — This is to save your emergency fund. Emergency funds are mostly required for hospitals. And Mediclaim will help you to minimize the expenses. This is also a lucky draw with a medium investment. BUT, just one incidence may help you to recover all the amount. And just one incidence may make you feel regret that you did not do it. So, it is advisable to take the simple route and have the Mediclaim.

God — Donations / Society return — This depends on one’s interest. BUT it should not be too less or too high. It should be proportionate to our earnings.

Here I will not comment my thoughts on how much percent to be invested in which area. It completely depends on One’s personal interests and needs. BUT one thing is for sure, above are the basics of investment and one must invest in these areas. And if after investing an optimum amount in these areas, you still have money left, you can explore many more other options.