5 Golden Rules Of Financial Planning

By | December 18, 2017

Here’s a five-point checklist to begin financial planning. Follow this guide to learn how to easily create a financial plan.

5 Golden Rules Of Financial Planning

Here is your guide to a few golden rules to follow when making a financial plan. It is very important to have a plan to keep your finances on track.

Wondering what you should consider when creating your plan? This five-point checklist will help you get started.

Check This: Personal Finance Calculators

1) Evaluate your present net worth

Do some math and figure out what your financial worth is. Here’s a hint. To get your answer, subtract your debts from your total investments and assets.

  • What are your goals?

Think about your immediate and future goals. In the short term, are you planning to buy a car or get married? In the long term, are you thinking of your children’s education or their marriage? Thought about your retirement yet?

Additional Reading: Are You Saving Enough For Retirement? Find Out
  • How much money do you need?

Spare a thought to how much money you will need at different stages in your life. Don’t forget to consider inflation.

Additional Reading: Financial Planning Ideas
  • Can you take risks with your investments?

Think about how much risk you are ready to take with your investments. Factor in your age and dependents when you decide your risk comfort level.

  • Where to invest?

Take your pick from among equities, real estate, debt instruments and other investments, depending on your risk level and goals.

Additional Reading: Different Types of Asset Classes

2) Start early, save more

Take advantage of the power of compounding and watch your money multiply gradually. Here’s your investment guide for different ages assuming an interest rate of 8.5%.

  • Invest Rs. 5,000 every month at 25 years

With returns assumed at the rate of 8.5% per annum, until the age of 60 years, if you begin to invest Rs. 5,000 per month when you are 25 years, your total corpus will be valued at about Rs. 1.2 crores.

  • At 30 years, start investing Rs. 6,000 every month

Follow this to the letter and your investment would total up to a corpus of Rs. 90.3 lakhs.

  • 35 years? Start with Rs. 7,500 every month

With that amount being invested every month, your total investment corpus will be Rs. 73.5 lakhs.

  • Crossed 40 years? You can begin with Rs. 10,000 every month

What will your total investment kitty be? How does Rs. 60.3 lakhs sound to you?

  • Already 45 years? Get going with Rs. 15,000 every month

Accumulate a total Rs. 52.8 lakhs. Sounds good?

Additional Reading: Invest Young, Retire Early

3) Secure your family and finances

It is crucial to safeguard your family and finances. Building an insurance portfolio is one step in that direction. Most people buy insurance as a tax-saving option. But you must consider it as an investment too.

  • How insurance can help

Insurance can make you risk-proof

Life Insurance

Keep these points in mind when getting Life Insurance:

  • Early demise: Term Life Insurance is an integral part of your financial portfolio. Ideally, you should be covered for at least 7-10 times your yearly income.
  • Don’t depend on your employer-provided health plan.
  • Consider an income protection plan that will cover you and your family in case you are unable to earn an income because of a temporary or permanent disability.

Save for your goals

  • Consider getting the right Child Plan to help you save up for important milestones in your child’s life. A Child Plan will protect your child financially in your absence.
  • If you are thinking of saving for your retirement, Endowment Plans offer low risks and will help you build a corpus.

Wealth creation

Long-term wealth creation insurance plans that are tax efficient are a good investment option to consider if your goal is to accumulate wealth. Unit Linked Insurance Plans are what you need.

Health Insurance

Here are some handy tips to help you select the perfect health cover.

Nuclear family?

Your best bet would be to opt for a family floater plan as the premium payable per person is lower. Include maternity benefits if you plan to have children in the near future.


Go for a basic indemnity plan. Add a fixed-benefit plan to cover yourself during the period that you may not work as a result of hospitalisation.

Living in a joint family with parents?

The family floater plan might not be the best choice if you’re living with your parents. This is because the premium is decided by the age of the oldest family member. Get your parents an individual Health Insurance policy. Get a family floater policy for your family.

Salaried and covered by employer-provided Health Insurance?

Get an individual Health Insurance plan that is separate from your employer-provided plan as the cover provided by your company may not be sufficient.

4) Ignoring taxes? Bad idea.

You can never escape taxes. Ensure that you don’t lose money to the taxman. It is a good idea to split your tax planning into three sections: tax saving instruments, tax payments, and filing returns.

5) Monitor investments periodically

Review your investments regularly to make sure they are working well in relation to your goals. If not, consider reassessing your investment portfolio.

A good financial plan means investing wisely in the right financial products. Be smart about handling your finances.

Additional Reading: Common Financial Planning Mistakes
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