DIGITAL

ASSIGNMENT - 1
Managing Personal Finance

Submitted To: Submitted By:

Prof. Manoharan. M Monashree Satheesh Babu
VIT Business School 19BBA0047
VIT Vellore
Question 1: Explain various stages of life. Also, discuss the different
financial commitments/requirement in every stage. Demonstrate how
goal setting is linked here.

Ans: There are seven stages in life. They are Infant (0-1 yr), Toddler (2-4 yrs),
Child (5-12 yrs), Teen (13-19 yrs), Adult (20-39 yrs), Middle Age Adult (40-59
yrs), Senior Adult (60 and above).

1. Infant & Toddler - The early food, activity and wellness of a baby might
contribute to a healthy (or fragile) foundation that affects the rest of his life. The
considerable cost for diapers, baby food and pharmaceuticals, regular paediatric
check-ups, swings, crib, car seat, toys, etc. If both parents work full-time, do not
underestimate day-care expenditures or childcare charges. It might bring
additional eight thousand to 10 thousand effortlessly to your cash flow. Insurance
coverage covering the child from birth are rare. However, when the infant is 90
days old, it will receive health insurance.

Question 2: Understanding of the economic environment is essential in Personal

finance. Considering the Indian economy, briefly explain a few important
economic indicators. How will you apply the same in Personal finance decision
making?
Ans: The few economic indicators are:

• GDP- GDP is the market value at a particular period of all finished

products and services produced inside a particular country. The expansion
of a country's GDP shows a growing economy, whereas a decline in GDP
shows that a country's economy slows down.

• Employment Indicators- The productivity and wealth of a country's

inhabitants is undoubtedly the most important predictor of economic
success. Labor force, payroll, and unemployment data are used to assess
 how many citizens are employed and if they are earning more or less
money than before. A drop in employment is frequently followed by a drop
in consumer expenditure, which can impact negatively on GDP figures and
overall economic growth expectations.

• Consumer Price Index- The Consumer Price Index (CPI) tracks changes
in the cost of consumer goods and services purchased by households. The
index is a statistical estimate derived from the prices of a sample group of
items collected on a regular basis. This metric is frequently used as a
measurement of inflation, which can have a positive or negative impact on
a country's currency.

• Inflation- Inflation is an important indicator for financial markets because

it indicates what kind of an investment's real value is being wasted and the
rate of return required to compensate for that loss. The main effect of
inflation on stock prices is the effect it has on a firm ’s earnings. Low
inflation reduces a company's costs and boosts profitability. So, everything
else being equal (a favourite term of all economists), low inflation is
preferable than high inflation for the market.

Economic indicator and personal finance decision making-

The CPI market basket is an aggregate meant to reflect the spending of the
average urban household, rather than any particular household. Because each
person purchases a different basket of goods and services, each person may have
his or her own inflation rate. Your individual inflation rate is determined by how
you base your decision.

Question 3: Career planning is part of personal financial planning – explain.

Ans: Many aspects influence career planning, including developing a strategy,

doing a realistic self-assessment, managing information, and making informed
decisions. The same variables aid in the management of your own finances.
Furthermore, the two activities are inextricably linked since changes in one can
have a significant impact on the other.

A personal financial plan includes a budget for current income and expenditures
as well as a long-term plan for savings and investments. The budget outlines how
much money you can set aside for education, major payments, trips, retirement,
and other life goals. Knowing your long-term goals may help you make career
decisions. It is critical to pick a career that provides rewards such as an income
that allows you to accomplish your financial goals.

All educational costs should be included in your financial plan, and you should
understand how you will pay for them. If you intend to take out loans, your plan
should include for the payments you will make, including interest. Before
accepting to any loan, take the time to study the interest rates and repayment
choices available to you. If you are deciding between two or more career choices,
knowing the educational costs and financial benefits of each option may help you
make a decision.

Realistic financial and professional strategies are the most successful. To make
the most of your plans, evaluate your strengths. You can immediately assess
whether you've set reasonable plans if you track your budget on a monthly basis.
On the career front, reviews and feedback from your company serve the same
role. In addition, if you own a business, your income statement and balance sheet
will keep you grounded in reality. Your work income will impose limits on your
financial strategy, and your financial plan will decide how much money you truly
require to attain your goals.

Budgets, spending, investments, and credit are just a few of the variables involved
in financial planning. Your strategy must arrange and convey the data in order for
you to make informed judgments. Personal financial software can assist you by
keeping track of your budgets, accounts, and investments and automatically
updating the information with the help of internet or application software. The
capacity to manage personal financial planning necessitates skills similar to those
required to thrive in your chosen industry. You must acquire, process, and make
decisions based on data in both domains.

Question 4: Retirement planning is part of Personal Finance- Explain.

Ans: Retirement planning does not imply focusing solely on one's finances.
Retirement planning includes both financial and personal planning. Personal
planning determines one's level of fulfilment in retirement. Financial planning,
on the other hand, assists in budgeting income and expenses based on a personal
strategy.

The first step in retirement planning is to have a vision of how you want to spend
your retirement. The lifestyle requirements and preferences will aid in budgeting.
As a result, financial planning will aid in the establishment of a retirement fund.
Everyone used to rush from their 9 to 5 jobs. Everyone works in order to earn
money and make a decent living. Retirement, on the other hand, refers to the point
at which a person is no longer able to work.

As a result, this is the moment when the money earned should do all of the job.
To accomplish this, one must begin investing for retirement at a young age.
Starting modest also aids in the generation of large future profits. As a result, a
retirement fund should be a well-diversified portfolio capable of generating
returns after retirement.

Planning for retirement at an early age can help you save money. In an insurance
policy, for example, the premium amount to be paid is lower when the insured is
younger. While acquiring insurance during retirement can be expensive.
You must have a sufficient amount of money to enjoy your retirement life to the
utmost. This is achievable if you have a financial strategy in place that provides
a steady income once you retire.

Question 5: Briefly explain the risk, return and salient features of the following
a. Investment in Gold
b. Various Postal savings schemes
c. Stock market investments
Ans:
• Investment in Gold- Because gold is unaffected by credit and default risk,
it is regarded as a safer haven and a hedge against inflation. According to
experts, among traditional investments, gold money can be used to stay
ahead of inflation. It should be noted that gold funds are not without risk;
however, the risks can be lessened with a long-term investment horizon.
Because gold funds will be invested in the form of digital units, investors
will not have to worry about the safety or storage of the gold. It is also not
necessary to have a Demat account in order to invest in gold funds.
• Various Postal Schemes- Indian Post provides a myriad of investment
options for a wide range of investors, including people and girls. All Post
Office investment programmes guarantee returns because they are backed
by the Government of India. Furthermore, a few post office investment
programmes provide tax savings of up to INR 1.5 lakhs on investment. Post
Office savings plans are simple to invest in and enrol in. The schemes have
insufficient documentation and procedures. The investment opportunities
are appropriate for both rural and urban investors.
Investors can choose from a variety of investment choices at the post office.
Each scheme has its own set of characteristics and benefits. As a result,
they are allowing investors to select the finest solution that meets their
investing needs.
 The post office plans have interest rates ranging from 4 percent to 7.60
percent. These investments are also risk-free because they are backed by
the government. As a result, investors do not need to be concerned about
their investments. They contribute to sound financial, retirement, and
pension planning.
The majority of post office investment plans are exempt from taxation
under Section 80C. Schemes such as SCSS, SSY, and PPF are examples.
In addition, for some plans, the interest is tax-free.
• Stock Market Investments- While stocks have traditionally outperformed
in the long run, there is no assurance you will make money on a stock at
any one time. Although a lot of factors can assist you in evaluating a stock,
no one can forecast how a stock will do in the future. There is no assurance
that prices will rise or that the company will pay dividends. Or that a
company will even continue to exist.
Stock prices fluctuate frequently and for a variety of reasons. When you
purchase and sell stocks, you must be willing to accept the risk of losing
all of your money, especially if you do not intend to invest for the long
term.