Personal Financial

Planning
Shilpa Dubey
 Topic
• 1. Introduction to Financial Planning:
 Need for Financial Planning,
 Assessing personal and financial goals, needs and priorities, attitudes and
expectations and risk tolerance level,
 Personal Financial Planning Process,
 Preparation of Personal Budget,
 Personal Financial Statements,
 Responsibilities of a Financial Planner,
 Time Value of Money,
 KYC, PAN & AADHAR
 • 2. Investment Planning: Introduction to
Investment Planning, Investment Criteria-
 liquidity, safety and Profitability, Investment vehicles (Gold, Bonds,
Equity, FD, Insurance, MFs, ETFs, Post Office Savings, Real Estate etc.),
 Risk and Return associated with these investments, Return comparison
over a period of time from different asset classes, Investment strategies,
 Mutual Funds as Investment Vehicle-Special focus on SIP, STP, and SWP,
NFOs, Trading in Commodities, Derivatives and F&Os, Crypto currency,
Creating an Investment Portfolio,
 Awareness of mis-selling in investment products.
 • 3. Risk Analysis, Insurance Planning and Debt:
 Risk analysis,
 Concept of long term risk,
 Insurance decisions in personal financial planning,
 Types of insurance cover-
 mortality, health, disability, property and liability, ULIPs and Term Plans, Credit
Card Financing, Types of Consumer and Home Loans- cost and risk, Credit Score.
•
 • 4. Tax Planning: What is Tax Deduction? Tax Deductions
under the Section and respective Subsections of :
 80C, 80D, 80E, 80G, 80 I, Sections 80 JJA, 80QQB, 80RRB, 80TTA, 80U
and other relevant sections, Direct Tax Code (DTC), Taxation impact on
different investment options, Personal tax planning, Filing IT Returns.

• 5. Retirement Planning and Estate Planning:

 Wealth creation, retirement planning for an individual, Pension Plans,
Provident Fund, Gratuity, Life Insurance Plans., General Insurance Plans,
Reverse Mortgage Plans, Senior Citizen Schemes, What is Estate? Who
needs Estate Planning? Transferring assets during life time, Power of
Attorney, Transferring assets post death – e.g., Nominations, Will, and
Creating Trusts
 1. Introduction to Financial Planning:

•Meaning :-
• “Financial management is nothing but to manage cash outflow by
considering the cash inflow and future cash obligation towards family.”
• Financial Planning is the process of meeting your life goals through the
proper management of your finances.
• Personal financial Planning is the process of managing your money to
achieve personal economic satisfaction.
 Meaning

• Personal finance is the process of planning and managing

personal financial activities such as income generation,
spending, saving, investing, and protection. The process
of managing one’s personal finances can be summarized
in a budget or financial plan. This guide will analyze the
most common and important aspects of individual
financial management.
 Why is Financial Planning Required

 Long term and short term objective.

 Secure the future of yourself and family.
 Unpredicted events.
 Allocate funds to meet expenses
 Family future protection
 Peaceful retired life
 Discharge of family obligation
Objective OF FINANCIAL PLANNING
 PLANNING FOR A LIFETIME
• Asset Acquisition Planning
• Liability and Insurance Planning
• Savings and Investment Planning
• Tax Planning
• Retirement and Estate Planning
 NEED OF FINANCIAL PLANNING
 Proper fund flow
 Minimise risk and Cost
 Easy to Understand
 Flexible
 Liquidity
 Proper use of Fund
short term objective.
 Secure the future of yourself and family

1. Securing Your Family

2. Tracking the Cash Flow
3. Better Investments
4. Assets Building
5. Senior care
6. A Prosperous Retirement
 Unpredicted events.

1. Long term sickness/disability

2. The onset of a critical illness
3. Unemployment
4. The death of income provider before the children have grown up
 Family future protection

 Allocate funds to meet expenses

 Peaceful retired life

 Discharge of family obligation

 What is a financial assessment?

A financial assessment is a set of questions to help you determine whether you’re

financially on track to reach your future monetary goals.
Taking a financial assessment will help you understand your current situation and
where you want to be in the future.
 Whether you want to attend luncheons with friends, play golf, travel to exotic places,
or spend time with grandchildren (maybe all of the above!) in your retirement, you
must determine your long-term financial goals.
A financial assessment can help you get on track with your retirement goals.
The assessment can be done with a financial planner .
A good financial goals assessment will most
likely ask questions regarding:

1. Your current sources of income, bills, and expenses.

2. Basic financial health, including your current retirement savings, emergency
savings, and debt.
3. Financial obligations, such as caring for children or elderly parents.
4. Your short and long-term goals, such as saving for college education, buying a
car, downsizing a family house, or saving for a desired retirement community.
5. Your current credit card payments, interest rates and credit situation.
6. Your mortgage or rent details.
 An in-depth or more personal financial
assessment might also ask questions about:

1. Retirement options available to you through your employer.

2. The types of accounts you currently have, rates, and current savings
situation.

3. Your approach to money, and areas you want to work on.

4. Your ideal balance between saving and lifestyle spending.
 Financial Goals

Creating a chart of your financial goals and assigning a timeline to reach

them will influence your investment strategy.
Financial goals are savings, investment or spending targets you hope to
achieve over a set period of time.
The stage of life you’re in usually determines what type of goals you wish
to achieve.
For example -- if you’re in college, it may be an easy short-term goal like
saving for a new pair of shoes or something more challenging like saving
for a car.
 How to Set Financial Goals
• Here are six steps to setting financial goals.
Figure out what matters to you. Put everything, from the practical and
pressing to the whimsical and distant, on the table for inspection and
weighing.

Sort out what’s within reach, what will take a bit of time, and which must be
part of a long-term strategy.

Apply a SMART- goal strategy. That is, make certain your ambitions are
Specific, Measurable, Achievable, Relevant, and Timely. SMART.
Create a realistic budget. Get a strong handle on what’s coming in and what’s going out,
then work it to address your goals. Use your budget to plug leaks in your financial ship.

With any luck, your tough, realistic, water-tight budget will show at least a handful of
leftover dollars. Whatever that amount is, have it automatically directed into a separate
account designed to address the first couple of things on your list of priorities.

Monitor your progress. Make sure that you are hitting certain benchmarks. If not, take
some time to re-evaluate what went wrong.
 Here are numerous practical benefits
to financial planning. It helps you to:
• There are numerous practical benefits to financial planning. It helps you to:
• Increase your savings
•
It may be possible to save money without having a financial plan.
• But it may not be the most efficient way to go about it.
• When you create a financial plan, you get a good deal of insight into your
income and expenses.
• You can track and cut down your costs consciously.
• This automatically increases your savings in the long run.
• Enjoy a better standard of living
•
Most people assume that they would have to sacrifice their standard of
living if their monthly bills and EMI repayments are to be addressed.
• On the contrary, with a good financial plan, you would not need to
compromise your lifestyle.
• It is possible to achieve your goals while living in relative comfort.
• Be prepared for emergencies

• Creating an emergency fund is a critical aspect of financial planning. Here, you

need to ensure that you have a fund that is equal to at least 6 months of your
monthly salary. This way, you don’t have to worry about procuring funds in case
of a family emergency or a job loss. The emergency fund can help you pay for
varied expenses on time.

•
 • Attain peace of mind
•
With adequate funds at hand, you can cover your monthly expenses, invest
for your future goals and splurge a little for yourself and your family,
without worry.
• Financial planning helps you manage your money efficiently and enjoy
peace of mind.
• Don’t worry if you have not yet reached this stage.
• If you are on the path of financial planning, the destination of financial
peace is not very far away
 H o w d o th eR isk T o leran ceP ro files

INCOME BALANCED GROWTH

THE EFFICIENT
EXPECTED RETURN FRONTIER

Stocks Bonds Cash

EXPECTED VOLATILITY

Income (Conservative) Balanced investors Growth (Aggressive)

investors generally… generally… investors generally…
• Seek wealth preservation • Seek wealth preservation • Seeks capital appreciation
• Accept lower risk (less and capital appreciation • Accept higher risk (more
volatility) • Accept moderate risk volatility)
• Hold more fixed income (medium volatility) • Hold more equities
• Balance growth and
income investments
 What is Personal Budgeting?
•A budget is an assessment of income and expenses for attaining financial goals
•  Personal budgeting is about understanding the equation between an
individual’s income and expenses to regulate the usage of money.
• Understanding personal budget results in a healthy financial life of an
individual.
 2.Determine your income from
1.Determine how to track the different sources Average out 3. Determine your expenses by
budgetary information. income over a longer period- dividing into 3 categories
minimum of 6 months

6.Determine how to Improve your

situation by increasing your 5. Determine your financial goals 4. Compare income> expenses,
income. E.g alternative sources of Child education/ marriage, Income< expense ,Income
income or increment track the retirement =expenses
budgetary information.

7 Review and evaluate your

progress
 personal financial statement

• A personal financial statement is a snapshot of your personal financial

position at a specific point in time.
• It lists your assets (what you own), your liabilities (what you owe) and
your net worth.
• To get your net worth, subtract liabilities from assets. Your net worth can
be either positive (if you have more assets than liabilities) or negative (if
you have more liabilities than assets).
• Examples of personal assets include:
• Cash
• Stocks and bonds
• Real estate
• Retirement accounts
• Personal property such as jewelry or cars
• Examples of personal liabilities include:
• Outstanding loans
• Mortgage
• Credit card debt
• Don’t include business assets or liabilities in your personal financial
statements.
 Responsibilities of a Financial Planner
A Financial Planner (also referred to as a Personal or Certified Financial
Planner) is a qualified financial or investments advisor.
They provide their clients with professional advice regarding investments,
insurance, tax, wealth management, and retirement planning.
They also serve as a middleman for clients and other financial professionals, who
offer guidance on legal, estate management, and personal tax planning.
A financial planner’s occupation requires that they remain up-to-date with
current tax legislation and financial product developments and the necessary
personal financial management strategies on retirement and estate planning.
 Responsibilities of a Financial Planner
•
1) Creation and definition of the client and financial planner relationship
2) Collection of client data and records and needs assessment (determining the client’s needs,
goals, and expectations)
3) Evaluation and analysis of the client’s current financial position
4) Development and presentation of the financial plan to the client
5) Implementation of the financial plan and recommendations
6) Monitoring and tracking the financial plan and how it is performing, and maintaining the
client and financial planner relationship
 Time Value of Money (TVM)

• Understanding The time value of money draws from the idea that rational
investors prefer to receive money today rather than the same amount of
money in the future because of money's potential to grow in value over a
given period of time.

• For example, money deposited into a savings account earns a certain interest
rate and is therefore said to be compounding in value.
 Time value of money
• Time value of money is based on the idea that people would rather have
money today than in the future.
• Given that money can earn compound interest, it is more valuable in the
present rather than the future.
• The formula for computing time value of money considers the payment
now, the future value, the interest rate, and the time frame.
• The number of compounding periods during each time frame is an
important determinant in the time value of money formula as well.
 Know Your Customer (KYC)
• Know Your Customer (KYC) standards are designed to protect financial institutions against fraud,
corruption, money laundering and terrorist financing. KYC involves several steps to: establish
customer identity; understand the nature of customers' activities and qualify that the source of
funds is legitimate.
• KYC Documents Individuals
• Passport.
• Voter's Identity Card.
• Driving Licence.
• Aadhaar Letter/Card.
• NREGA Card.
• PAN Card.
 PAN & AADHAR
• A permanent account number (PAN) is a ten-character alphanumeric identifier, issued in the form
of a laminated "PAN card", by the Indian Income Tax Department, to any "person" who applies for it
or to whom the department allots the number without an application. It can also be obtained in the
form of a PDF file.
• A PAN is a unique identifier issued to all judicial entities identifiable under the
Indian Income Tax Act, 1961. The income tax PAN and its linked card are issued under Section 139A
of the Income Tax Act. It is issued by the Indian Income Tax Department under the supervision of the
Central Board for Direct Taxes (CBDT) and it also serves as an important proof of identification.
• It is also issued to foreign nationals (such as investors) subject to a valid visa, and hence a PAN card
is not acceptable as proof of Indian citizenship. A PAN is necessary for filing income tax returns.
 PAN
• The PAN (or PAN number) is a ten-character long alpha-numeric unique identifier.
• The first five characters are letters (in uppercase by default), followed by four numerals, and the last
(tenth) character is a letter.
• The first three characters of the code are three letters forming a sequence of alphabets letters from
AAA to ZZZ
• The fourth character identifies the type of holder of the card. Each holder type is uniquely defined by
a letter from the list below:
• A — Association of persons (AOP) B — Body of individuals (BOI) C — Company
• F — Firm G — Government H — HUF (Hindu undivided family) L — Local authority
• J — Artificial juridical person P — Person (Individual) T — Trust (AOP)
 PAN
• The fifth character of the PAN is the first character of either:
• of the surname or last name of the person, in the case of a "personal" PAN card, where
the fourth character is "P" or
• of the name of the entity, trust, society, or organisation in the case of a company/HUF
/firm/AOP/trust/BOI/local authority/artificial judicial person/government, where the
fourth character is "C", "H", "F", "A", "T", "B", "L", "J", "G".
• The last (tenth) character is an alphabetic digit used as a check-sum to verify
the validity of that current code.
• Provisions
 Aadhaar
• Aadhaar is a 12 digit individual identification number issued by the
Unique Identification Authority of India on behalf of the Government of
India.
• The number serves as a proof of identity and address, anywhere in India.
• M.sABC used her credit card in a continual manner and piled up credit card debt.
She should begin to set a manageable budget and assess her financial situation. She
should take appropriate actions to mitigate her financial risks. Within that
situational analysis, she may focus on ways of getting out of credit card debt and
saving money for future possible business ideas. Contingency actions like setting a
separated deposit to pay off credit card debt can be a wise decision to address the
debt situation. In order to take this decision to the action level, she is required to
identify income sources. She can look for another part-time job to make additional
money with her current part-time job at the local pet shop. She can utilize her
existing photography gig with the help of her laptop and camera. Also, she can
reduce her daily expenditures such as, by using public transport instead of her
personal car to commute. She can use her savings to pay off the interest of credit
card debt. That will minimize the interest issues and will make a favorable situation
to pay the debt.
•
• Describe what short-term, intermediate and long-term goals Ms.ABC should
• Financial goals must be attainable, Ms.ABC can set her financial goals in a
time-based manner
• shown as below,
• 1. Short-term goals [less than 1 year]
• ● Set a manageable budget.
• ● Pay off the credit card interest and bills for the term.
• ● Begin paying off student loan debt.
• ● Practicing a regular savings habit.
• 2. Intermediate goals [1-5 years]
• ● Establish a dedicated fund for her own business.
• ● Saving for down payment to buy a house.
•
• 3. Long-term goals [over 5 years]
• ● Owning her own business.
• ● Owning her own house.
• ● Establish a retirement plan.
 Time Value of Money
• 1. Money may not grow on a tree it grows with time. MONEY HAS A TIME VALUE
• 2. The time value of money is a compensation for
• 3. TVM= Inflation + Real rate of return on risk free investment + Risk premium
• A. Inflation is the fall of money , it makes money cheaper and product costlier.
• B. Real rate of Return from a risk free investment @ investment in Government
security and getting 8% int. rate
• C. Risk Premium- Risk premium is the extra amount of return in risky investment .
The extra return over and above the risk free return is called the risk premium.
Higher the risk on an investment, higher would be the risk premium.
 Time Value of Money
• 4. Time value of money is the rate of return expected from a comparable investment
alternative.
• 5. Time value of money can be different from different people because each a different desired
compensation for postponing the consumption of money.
• 6.The time value of money can be different for same individual with reference to differencing
investment because the risk profile is different for different investment.
• 7. A Safer rupee is grater in value than a risky rupee. Higher the risk higher will be the time
value of money.
• 8. The value of an asset is the present value of the future cash flows to be received across the
life of the asset discounted at the appropriate time value of money.
•THANK YOU