A Quick Primer on Financial Planning for Beginners in the Year 2014 2015

It’s the single biggest investment mantra that never fails and a time tested fact that investing early gives you the best possible returns – be it mutual funds, bank deposits, stock markets or any other investment avenue.  While there is no age limit for knowledge and one can achieve it at any point in life, investing and savings work best if one starts early.

India is a young country per se with its average workforce in the age of 25 that earns anywhere from 2 to 3 lakhs per annum or even less; and a majority of these are people who are just starting out with their career. Now it may so happen that people tend to push investment planning to the back burner over other priorities. This essentially stays as it is for the initial years of a person’s career.

Formulating a Strategy is Crucial

It is extremely essential for those who have just begun their career, to make financial planning very early in their career to get the best benefits of their hard earned money and secure their future without having to compromise on their present lifestyle.

The recommended way to do this is to take a balanced approach at investment planning by first identifying near and long term goals and objectives, identifying your financial risk appetite and then accordingly working towards your objectives.

Outlined below are the key essentials that can help you draft your overall investment planning strategy.

Building up a Savings Pool

Now before you even get into building an investment or financial planning strategy, it is advisable to build initial savings which according to a person’s capability can be the equivalent of 3 to 6 months of your monthly salary or expenditure. This savings pool ensures that you have something to dip into, in case things go unplanned such as a temporary job loss or meeting other emergency expenses.

Life Insurance

Insurance is one of the most essential components of financial planning. More than a mode of investment, life insurance should be used to secure the financial condition of your near and dear ones. Before subscribing for life insurance, however, you would need to appropriately determine the optimum amount of coverage required to take care of your liabilities and your dependant’s needs.  There are a variety of insurance products to choose from including hybrid products such as united link insurance plans (ULIPs) that offer the benefit of both insurance and investment.

Health Insurance

At the outset, you might get the feeling that you won’t need health insurance. After all, you are young and it is not likely that you might fall sick or seek hospitalization that often.  But the perception, however, is incorrect as health is something that should never be taken lightly.  The irony of the situation, though, is only those who have benefited from health coverage understand the true value of health insurance coverage. Seeking health coverage to meet health care and hospitalization expenses for you and your family can help you save a lot on healthcare expenditure should there ever be a need. Health insurance policies are definitely a must-have option when you formulate your financial planning strategy. The benefits you can expect to enjoy include cashless treatment, cost of treatment under the coverage plan treatment, list and expenses of pre-hospitalization.

Other Long and Short Term Investment Options

These can be a smart mix of financial instruments right from equity based investment schemes to traditional investment products such as bank fixed deposits. Options can vary from stock markets, mutual funds, post office deposits, bank deposits, government bonds, PPF amongst others. The ideal approach again would be to appropriately identify your risk appetite and then choose a suitable product. For instance, those who have just begun their career can afford to take more risks and thereby can have increased exposure to equity based investments. They can then accordingly fine tune their portfolio to move to lesser risk averse options as they mature.