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Financial Literacy & It’s Importance
In India there is only 27% financial literacy according to google baba. Financial literacy and awareness is most important factor in every family. The way we take academic education to get a job or to start a service and then earn money, on the same ground we must take financial education and understand its importance in once life. It is observed that such financial education is not a part of our academic education system and hence it is very difficult for a person who just started to earn income and don’t know how to spend, save and investment that income for present as well as future family commitments.
To be financially free at 50 or 55 years of age is a big dream of every individual, but to work for it, plan for it, its implementation, execution is also that much important. It needs serious discipline, dedication, devotion, passion and consistency in saving and investment habit.
Steps to follow:
1. Family Monthly Budget : Family Monthly Budget : To start with such journey every person who earns is to start preparing monthly budget with two heads non-discretionary and discretionary and put necessary expenses under these heads to understand. The monthly budget is your real money navigator which shows you how you earn, spend, save and invest your money. It also gives you idea about your monthly surplus or deficit situation.
2. Family Financial Goal Planning Every person who earns money and the main bread winner of the family must describe his/her financial goals about self and other family members. It should include emergency fund, proper and sufficient insurance protection to all family members like Term Insurance, Health Insurance & Personal Accidental Insurance, Own and spouse retirement planning, Child education and marriage planning as well as other family goals like buy a house, buy a car, domestic as well as international travel etc. One should understand the various options of investments and its impact on his/her financial goal. There are so many investment options are available now a day like bank fixed deposits, bank recurring deposits, NBFC fixed deposits, Insurance money back, endowment policies, property/real estate, gold, mutual funds, stocks, crypto, govt. securities, national pension system etc. One should take the help of expert person in this field and then build the investment portfolio with due consideration of personal risk profile and investment products risk profile. Review and rebalancing of such portfolio is require on yearly basis to assess goal positioning.
3. Tax Optimisation The person who earns money and whose income falls in the taxable category and eligible for tax payment should understand about how to save tax, various options of savings tax, their features and benefits and try to optimise it at every stage of life.
4. Succession Plan / WILL The person who earns money and whose income falls in the taxable category and eligible for tax payment should understand about how to save tax, various options of savings tax, their features and benefits and try to optimise it at every stage of life.
One can write and register his/her succession plan/WILL at any point of time in his/her life journey, provided he should be major i.e. more than 18 years of age. It is important factor in once life.
In the next blog I will discuss on various aspects as well as products available in investment basket with their merits and demerits.
The above information shared here is my personal view and will not apply to anyone’s personal life. It changes person to person.
Good Day
Yogesh Gadikar (CFP)
Importance of Diversification in the Investment Portfolio
Investment is very vast and deep subject. An individual should always think and do diversified investments. The portfolio should be mixed of all investment options like bank fixed deposits, postal savings, public provident fund, real estate, gold, equity mutual funds, debt mutual funds, index funds, stocks etc. Due to diversification of investment the individual will get always average and better returns compare to inflation and it helps individual to beat the inflation and achieve the respective financial goal.
Most of the time it seems that people try to avoid take risk. It may be due to lack of knowledge, bad experience or no proper guidance. Every investment carries risk and risk is inheriting in the return. Higher the risk, higher the return and vice versa. Rather than avoiding the risk one should learn and develop the skill of risk management.
Diversification depends upon age profile, investment risk profile and time horizon of the investment. A young person may take higher risk by investing in equity and equity related mutual funds for the long term perspective but a senior citizen person may think and take lower risk due to age profile and low commitments in life. The rule of 100 is important here to know how much one should invest in equity or equity related mutual fund. Suppose a person whose age is 35 may invest 35% in Debt or Secured investment options and (100-35 = 65) 65% in equity or equity related mutual funds.
One should always take the help of expert person who has thorough knowledge and proper certification and experience in this field.
One should also take review and rebalance the portfolio on yearly basis with due asset allocation method.
Good Day
Yogesh Gadikar (CFP)