The outcome of financial planning is financial plan. Like a roadmap, a financial plan should guide you through the key milestones of your road trip towards financial freedom. The key components of financial planning are :

Cash flow planning or money management.

Tax planning.

Investment Planning.

Insurance Planning.

Retirement Planning.

Debt Planning and management.


Spending Frivolously

Mindless use of credit cards

Caring little for regular savings

Investing based on half knowledge or limitation


Attitudinal Myths

Investment Myths

Tax Pl anning Myths

Credit Card Myths

Need for Financial Advisory Services:

Longer life span and lack of social security

Proliferation of numerous products

Complexity of products & services

Increasing income and savings levels

Increasing level of borrowings

Higher aspirations and goals


Nuclear families

Plethora of Information

Advisory Services:

Insurance Planning:

Insurance Planning is determining the adequacy of insurance cover required by the client to cover the risk associated with one’s life, medical emergencies and assets. While offering Insurance Planning services, a Financial Planner should address the following requirements of his clients:

- In case of pre-mature death of the bread-winner of the family, the family’s income will stop or reduce to a great extent. In such a case, the family will have to depend on some money that can generate income to at least cover the expenses, commitments and liabilities for the rest of their life. How much would the amount required be?
- How much of health insurance is required to protect a client and his/ her dependents to meet with a medical emergency?
- Which type of accident policy and critical illness policy will suit the client?
- Is there a need to have insurance of household goods?
- Determine whether the client has adequate insurance or not. Also determine if the client is over-insured.
- What are the risks to the client’s (or family’s) income earning capacity?
- What are the risks of loss with respect to the assets owned by the family?

Retirement Planning:

Retirement Planning is determining how much of corpus is required to fund the expenses during the retirement years and ways to build that corpus in the pre-retirement period. It also dwells upon the utilisation of the corpus accumulated during the retirement years. And while offering the service to a person who has already retired, a planner can offer investment advisory services to help the client generate required income from the retirement corpus and also manage the investment portfolio. While offering Retirement Planning Services, a Financial Planner should address the following questions of his clients:

- What is the retirement corpus required to lead the same lifestyle after retirement?
- How will inflation affect the sustainability of Retirement corpus in postretirement years?
- What are the various options and what is their role in investments for retirement?
- Is there scope for early retirement, or retirement is postponed due to inadequate corpus?
- What additional investments should be made to build retirement corpus?

Investment Planning:

Investment Planning* determines the optimum investment and asset allocation strategies based on the time horizon, risk profile and financial goals of the client. There is a wide range of investment options available today. A Financial Planner offering Investment Planning services should understand and analyze various asset classes as well as the products available under each asset class before recommending an investment strategy to the client for achieving financial goals. While offering Investment Planning Services, a Financial Planner should help answer the following questions pertaining to a client:

- What are the life goals? How can these be translated into financial goals?
- What is the client’s risk profile? - What is the time horizon available for investments?
- What should be the ideal Asset Allocation?
- Which asset allocation strategy should be followed?
- How to achieve diversification of investments?
- What is the investment objective – ‘income’, ‘growth’ or just capital protection?
- How much to invest either in a lump-sum or regularly to achieve the given goal?

Tax Planning & Estate Planning:

Tax Planning includes planning of income, expenses and investments in a tax efficient manner to gain maximum benefit of prevailing tax laws. The following questions pertaining to a client need to be answered:
- Is the client making optimum use of all available tax benefits?
- How to lower the tax liability? How to increase tax-adjusted returns on investments?
- What are the changes in tax laws that may affect cash flows, investments and savings?
- What is the effect of capital gains on investments?
- How to calculate tax liability for the previous year?
- How to avoid just the year-end tax saving and do strategic tax planning?
- Which investment option to choose amongst the various options available u/s 80C of the Income-tax Act, 1961?

Comprehensive Financial Planning:

Comprehensive Financial Planning is the act of planning for and prudently addressing life events. It addresses everything from buying a new car or home, to planning for a child’s education, preparing for eventual retirement or creating a plan for your estate. But it goes well beyond these basic life events. It addresses the planning part of all major financial transaction which have a bearing on long-term finances, cash flows and asset creation. While the financial goals are met at different time periods, the associated liability and risk to life and assets are to be adequately covered with tax efficiency of financial transactions. A Financial Planner offering comprehensive Financial Planning should offer customized advice to help his/her clients meet their goals and objectives.

Life Insurance Needs Analysis:

Human Life approach:
Human life value of any person can be measured by capitalized value of that part of his income or income earning capacity devoted or meant for dependants arising out of economic forces incorporated within his being, like character , health, education, training, experience and ambition. Simply put the human life value is the present value of the person’s future earnings. This is a method of calculating the amount of life insurance a family will need based on the financial loss that family would incur if the insured were to pass away today. It is usually calculated by taking into account a number of factors including but not limited to the insured individual’s age, gender, planned retirement age, occupation, annual wage, employment benefits, as well as the personal and financial information of the spouse and/ or dependent children. Since the value of a human life has economic value only in its relation to other lives such as a spouse or dependent children, this method is typically only used for families with working family members. The human-life approach is different from the needs approach. Notes: Remember, when using the human-life approach, include only the after-tax pay and make adjustments for personal expenses incurred. Also, add the value of health insurance or other employee benefits to the income number.

Need Based Approach:

This is a method of calculating how much life insurance is required by an individual/ family to cover their needs (i.e. expenses). These include things like funeral expenses, legal fees, estate, gifts and taxes, probate fees, medical deductibles, emergency funds, mortgage expenses, rent, debt and loans, college, child care, schooling and maintenance costs.

Needs are divided into 3 types:

• Cash Needs – Funeral Expenses, Uninsured portion of medical bills, legal charges, etc.
• Income Needs – Income for the family.
• Special Needs – Debt, Children’s education, children’s marriage, contingencies, etc.

What is already available to meet these needs?
Investment & deposits Death Benefits from Employer Existing Life Insurance Other Assets Method of calculation Add all needs (Cash needs + present value of income + special needs) Deduct all available assets The result would be the amount of Insurance required.

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