Thumb rules for personal financial planning in India

Financial planning in Indiais the prerequisite of a successful and financially strong lifestyle and gives you the edge over risks and woes of low finances at the times of need. Proper financial planning allows you to meet your life goals and to fulfill your dreams through better avenues. It helps you develop a confident and disciplined outlook towards your future plans and makes you assume control of how your money works for you.

Planning how you spend/invest and utilize your monetary corpus is essential for you to achieve financial stability and strength. Viewed in Indian context, there are certain steps that you MUST take for core personal financial planning:

1. Analyze your financial status:

   This is the very step for financial planning. Before you begin to develop any kind of plan, you must know all about the core strength of your own finances and what can be accomplished. List out your assets, liabilities, insurance coverage, investments, cash flow and buffer capital etc. Discuss with your partner and also make a list of joint assets, accounts, liabilities etc. 

2. Divide your income:

   Know clearly what is to be spent and where. 30 % of your income must be used for monthly living expenses and 30% of your income must be used for liabilities repayments, if any. 30% of your income must be invested for your future living while 10% of your income must be spared for entertainments, vacations. 6 months expenses must be available for emergency fund (should be invested in Liquid funds, Fixed Deposit etc. and if you are married, the home loan must be registered and applied on both husband and wife name (Both can get benefits on Home loan Tax benefits).

3. Know all Tax implications:

   You cannot avoid paying tax. But you can minimize by way of tax planning and high return investments. Check thoroughly if you are paying more tax than you should.

4. Life insurance is a must

   Only term insurance can truly be called life insurance. Never mix investment and protection in the same plan, as in the case of endowment or money-back plans, where the returns are meager on both fronts.

5. Plan your investments:

   Diversification is important. Invest by keeping in mind the long term and short term goals and how to achieve them. Seek for options to invest in diverse and parallel domains.

6. Clear your debts:

   There is no use in investing your money if you have outstanding debts or loans as the interest you earn from your investments would be eaten away by your loan interests and you would eventually be stuck in this never-ending cycle even if you actually own assets. Always think about investing or buying assets only when you do not have any outstanding debts.

7. Seek the services of a professional financial planner:

   This is very important. Financial security involves parameters that can be best understood by a documented and certified professional. The Financial Planner should clearly explain the services to be provided to you and should be able to demarcate the responsibilities. Your role and other terms and conditions are equally important and must be thoroughly documented and listed. There must be absolute clarity in regards to both his and your responsibilities.

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