4. Financial Planning
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A continuous process through which a planner helps his
client to achieve his life goals
These goals may be:
• Retirement Planning
• Children Education
• Recreational Goals etc.
5. building careers
Transact
-ion
Invest
ment Loan
Surplus
Money Deficit
6. building careers
Income Expense Savings
Revenue from
Investment
Investment
Long Term Short Term
7. Retirement Planning?
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It is the process of
ensuring sufficient
financial resources to the
retired person so that
he/she can enjoy the
desired lifestyle during
the retirement years
9. Questions People Face for RP
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• When to start
• How much to be saved
• Estimating retirement income and
expense
10. Wealth Creation
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Involves the building of assets by
means of careful investment into
asset based investments, usually
over a long period of time so as to
achieve an income stream that will
ensure a continuation of a high
quality lifestyle in the years beyond
retirement
11. Principles of Building Wealth
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Start investing early
5.71
Mr. E Mr. L
Crore*
Investment Starting Age 25 40
Investment - Monthly SIP Rs.5,000/- Rs.10,000/-
Saving Years till age 60 35 years 20 years
Total Investment Made Rs.21 lacs Rs.24 lacs 1.33
Crore*
Investment requires time to grow
25 years 40 years 60 years
*Expected rate of return 15%
12. Principles of Building Wealth
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• Investment does not require
timing but it requires time to
grow
• Reap the benefit of compounding
13. The Simplified Maze..
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• All debt is a bad debt
• Have written budget and
try to adhere
• Set the SMART goals
• Let your money work for
you
14. Challenges
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• Longevity Risk
• So when such plans are
made the nest should be
higher than the required for
the expected life…
15. Inflation Risk the Biggest Chellange
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• Too much money chasing few
goods
• Increases the future cost of
goods
• Reduces the purchasing power
• While planning for retirement
inflation estimates plays the
vital role
• Average inflation can be
assumed between 5% to 6%
based on the past average
16. Case study - Inflation
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• Suppose Mr. Chauhan aged 45 spends
Rs. 3,00,000 p.a.
Expected increase in standard of living 3%
Standard of living during retirement 80%
Inflation 5%
• Imagine the amount that he will
require at the age of 60 years for one
year
Its 9,51,650 approximately
17. FP and Investment Planning
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• Through investment one can achieve life goals
• It is a path to retirement
Must consider
• Asset allocation
• Risk
• Time
19. FP and Insurance Planning
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• Loss of earning can destroy the
plans
• Simultaneously it is not
possible to cover all the risks
because of the cost
• Life insurance
• Disability income insurance
• Medical insurance
20. Human Life Value
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Mr. Mohan is an assistant manager in a private firm
• Present age is 45 years and retires at age 60
Present salary Rs. 2,40,000 pa
Total life insurance premium Rs.15,000 pa
Income tax and professional tax Rs.35,000
Self-maintenance expense Rs.30,000
• Medical expenses are being reimbursed by the
company.
• Assume discount rate to be 8% p.a.
21. Calculation
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Gross total income 240000
Less:
Self maintenance expenses 30000
Taxes payable 35000
Life insurance premium 15000
Surplus income generated for the family 160000
By discounting the annuity of Rs.160000 for 15 years @8%
His insurance need for today is 14,80,000
23. Tax Planning and FP
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• The biggest enemy of FP is taxes
• Taxes eat up lots of wealth of the
investor
• Efficient tax planning can help an
investor to generate better wealth
• Taking higher risk and paying
higher tax is not a wise strategy
• Focus more on tax reduction
24. I want to Buy a Car
building careers
• Let say, you are buying a car of Rs.5 lakh and Rs.1
lakh you have paid as down payment. Rs.4 lakh is
loan for 5 years.
Rate interest on loan 12% pa
No of EMIs 60
EMI 8900 approximately
Decline in value of car per year 20%
Loss of interest on down
8%
payment
KM run per year 10,000
Mileage 15 km per liter
Price of fuel (petrol) 55
25. Cost of Ownership
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Fuel cost per km 3.67
Interest burden of loan per km 2.68
Loss of value per km 10
Loss of interest on down
0.8
payment per km
Total cost of running car per km 17.15 for the first year
26. Force Theory of Money
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If I get Rs.10 lakh today, my all the financial problems
will get over and I can start with planning.
27. What is Better
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• Shall I buy a house or take it on rent
• Shall I buy a smaller house or bigger house