Monday, 1 April 2013

Importance of Managing Personal Finances



1. Establish your budget

Before creating a budget, review your financial history. Using bank and credit card statements identify both how much income you take in, and how much you typically spend on expenses. Compile the financial information into two separate categories: expected income and expected expenses. Expected income should include wages, self-employment income, investment income and other sources of income. Next, list expected expenses such as mortgage or rent, utilities, and cable and cellphone costs. Lastly, subtract expected expenses from expected income to determine the amount you have available after expenses are paid. The available amount should be put away for rainy days, used to pay down debt or applied to other financial goals.
2. Separate the necessities from the wants

Further separate your expected expenses into two additional categories: discretionary expenses and non discretionary expenses. Discretionary expenses are simply "wants," such as entertainment, dining out or gym memberships. Non discretionary expenses are necessities, such as rent, utilities and groceries.
3. Track your expenses

Periodically update your budget to list the actual expenses for each category. Compare budgeted amounts with actual spending. If you are tech-savvy, use Smartphone budgeting applications to help you keep track of expenses. Or, if you enjoy recording the old-fashioned way, keep a notepad to document your expenses.
4. Review and adjust frequently

Prepare a budget at the beginning of each month or every pay cycle. This gives you an opportunity to review your prior month's budget and identify areas where you need to control spending. Make any adjustments necessary to help you reach financial goals, such as saving or reducing debt.
5. Budget for life's pleasures

Consider planning for certain indulgences, such as date nights, or a new dress or pair of shoes. Planning ahead of time will help you understand what you can afford, and also serves as a reminder to treat yourself every now and then.

Saturday, 30 March 2013

What is Estate Planning? Why everyone needs Estate Planning?


When people hear the words “estate planning”, they often think it only applies to the rich and famous or those who have the potential of a taxable estate. This is a common misconception.Everyone, regardless of their net worth, needs to prepare some basic estate planning documents. Basic estate planning documents not only direct how your assets will be distributed upon your death but can also carry out your final medical wishes. Most importantly, these basic estate planning tools can help protect your loved ones during a difficult time.

 Here are the two tools you should have:

Will – This is a legal document that lays out the distribution of your personal property after you die. You choose the person, your personal representative, who will oversee your estate as it goes through probate. A will not only protects your physical assets but also any children you have as a will allows you to appoint a legal guardian, rather than letting the court make this decision. A will must be drafted by a lawyer who can ensure that your will meets your home states legal requirements.

Living Trust – This is a legal entity where you are able to transfer title of your property during your lifetime. The first major benefit is you maintain control over all of the assets transferred to the living trust during your life. You also choose who the trustee of your living trust will be when you die. The trustee ensures, after your death, your assets are distributed to the named beneficiaries. The second major benefit of a living trust is that this trust avoids probate, which can be costly and time consuming.

Friday, 29 March 2013

What Is the Importance of Investing?


Investment gives your business essential the capital that it needs to get off the ground (if you're a start-up) or to get to the next level (if you're more established). It can mean the difference between success and failure, or between reaching your full potential and only getting partly close to it.

The importance of investing cannot be overstated. Money is a fluid thing. Something worth one dollar one day could cost significantly more the next day. This is because history shows us that things always cost more over time. When you view this dynamic over years and decades, it becomes obvious that doing nothing with your money will cause it to lose its buying power. It is therefore important to invest to make your money grow rather than shrink.

Investing is also a way to help save money for a major purchase. This can be for a home, car or vacation. The more your money grows while it is invested, the faster you will reach your investing goal. Like the emergency fund, the investment should have as high a growth potential as possible without having too much risk. However, if the savings goal will take you several years to achieve, it is worth considering a little more risk in exchange for a little better return.

Investing is especially important for long term savings goals. The best example of this is college savings for children. The most important reason to invest is for retirement. When your working days are over you will need money to survive. Retirement investing has the longest time horizon of all. As a result, you can afford to take chances while you are young. As with college savings, you should shift to more conservative investments as you approach retirement age. 

If you don't start investing now, expect to be in the poor house later.

There are many investment calculator tools available online. Investment calculator can help you plan your way to overcome the requirements identified by you in the Savings and Retirement Needs calculators.

Here is one of the investment calculator.
http://www.inglife.co.in/planningtools/planningtools-achieving.shtml#



Monday, 25 March 2013

Importance of Certified Financial Planner


CERTIFIED FINANCIAL PLANNER Certification (CFP) is a mark of excellence granted to individuals who meet the stringent standards of education, examination, experience and ethics. It is the most prestigious and internationally accepted Financial Planning qualification recognized and respected by the global financial community.

CERTIFIED FINANCIAL PLANNER is marks which help you identify Financial Planners who are committed to competent and ethical behaviour when providing Financial Planning services. CFP practitioners have taken the extra step to demonstrate their professionalism by voluntarily submitting to the rigorous CFP certification process. In addition to significant education and experience requirements, they must pass a comprehensive exam that tests their personal Financial Planning knowledge and skills, continually update their abilities and abide by FPSB India Code of Ethics and Professional Responsibility (Code of Ethics) and Financial Planning Practice Standards (Practice Standards).

CFP practitioners can work in several settings including small Financial Planning practices, large financial services firms, banks and other financial institutions. The Certified Financial Planner (CFP®) designation can be of critical importance for reasons that are largely hidden by the financial services industry.

When it comes to ethics and professional responsibility, Certified Financial Planner™ professionals are held to the highest of standards. CFP Board's Code of Ethics outlines CFP® professionals' obligations to uphold principles of integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence. 

Wednesday, 20 March 2013

Importance of Financial Management

Financial management is very important or significant because it is related to funds of company. Financial management guides to finance manager to make optimum position of funds. 

With study of financial management, we can protect our business from pre-carious mismanagement of money. Suppose, you are small businessman and you took short-term loan and financed fixed assets with this loan. It means, you have to pay loan within one year but fixed assets cannot be sold within one year. In the end of year, you have not enough money to pay this long term debt and this will create risk to your business’s existence. You will become insolvent. This is the simple example of mismanagement of money in your small business, but we do large scale company business, importance of financial management is greater than small business. We should invest in fixed asset if there is any other source of funds. In financial management, we make optimum capital structure and we should buy all fixed assets out of share capital money because, it will reduce the risk of repayment.

In financial management, we deeply study our balance sheet and all sensitive facts should be watched which can endanger our business into loss. For example, a closing balance sheet shows you, you have to pay large amount of debt in next year and you have blocked all the money by purchasing goods or inventory. Financial management teaches you that this is not good outflow of funds which is invested in inventory. Blocked inventory never generate earning and your balance sheet’s stock value gives you idea that your company is not capable to sell products quickly. Financial manager can elucidate you that overstocking will increase go down expenses one side and it is also risky due to the danger of damage the stock. Moreover, it increases risk of liquidity. Inventory management is the part of financial management and merely using inventory management can be the best way to solve the problem of overstocking.

 Financial management works under two theories. One theory reins bad sources of fund. This theory elucidates us that we should think cost, risk and control and these should be minimum when we get money from others. Only financial management makes good financial structure to minimize cost, risk and control of borrowed money. Second theory clarifies us that we should think about time, risk and return before investing our money. Our ROI should be more than our cost of capital. Our risk of investment should be least. We should get our money with high return within very short-period. All above things can be possible only after study financial management.

Friday, 15 March 2013

Achieve your financial goal with right investment approach and knowledge.

We all dream to be financially stress free, have a larger than life retirement, leave a fortune for our heirs etc. These are some of our major life goals and can be achieved with the right investment approach and knowledge. However the problem occurs when these investments go for a toss and one needs to compromise or give up on achieving their future goals. Most of our investments are either emotionally driven or instinct based. Even today when one wants to make an investment they will go to their father’s friend’s cousin for a tip, invest in the same and will realize after 10 years that the rate of return was as good as keeping the money in a savings bank account. When it comes to purchasing a life insurance policy or mediclaim one will go to their family insurance agent who will sell the policy that gives him a higher commission than the policy which is actually required for the client and all this without any calculations or need analysis.
 Your money is lying in the savings account but not being invested: it is a very good habit to have a contingency fund in case of any loss of income. However most of us keep their entire earning in the savings a/c where the rate of return is too low. This will keep your money safe and liquid but with very little growth. Thus it is essential to invest your income in a better investment instrument which will give you a high rate of return to achieve your financial goals in time.

Your insurance cover is higher than you actually required: the amount of life insurance cover required should not be decided by your insurance agent but should to be calculated as per your need analysis i.e. the sum of projected cash flow required by the dependents, corpus for important goals and liabilities if any. Also if your investments add up to the total cover calculated you may not require life insurance.   One may think that the higher the insurance cover the more secured one’s dependents will be, but one does not realize that higher the cover higher will be the premium, instead of paying high premium the same can be invested in a better instrument for a better future goal. Life insurance is not taken for self but for his/her dependents in case of any unfortunate demise of the bread earner. Thus one with no dependents does not require life insurance.

Your life insurance cover is not enough for your dependents: life insurance need analysis gives you an approx amount of cover you require. One is satisfied with 10 policies bought from their agent but do not bother to find whether the total sum assured is even close to their actual cover required. You may not realize now as you are happy with your 10 plus policies but the total sum assured may be too low for your dependents to survive after you or the entire sum assured is washed off in paying your liabilities. One may not be able to purchase more policies as they are already paying high premiums for their current policies, thus for life cover a term insurance policy should be considered as it is pure insurance with very low premium.

Save yourself before you fall in a debt trap: the psychological concept of instant gratification is the start of building a debt trap for yourself. You see some new expensive gadget in the market but currently you are not able to purchase by cash due to tight budget and so you will not think once before swiping your credit card. This will make you a proud owner of the “expensive gadget” but with a liability and in case you forget or are not able to pay your credit card bill on time you have just increased your liability. A good loan will help you build an asset but a bad or the ugly one will erode your money in no time and you may not be able to get out of the debt trap. Thus it is very essential to think twice before taking a loan and why is it required.

Lower the risk, the lower will be the returns: Most of us are risk averse and invest only in risk free instruments. Since risk and returns go hand in hand the lower the risk, the lower will be your returns. Thus manageable risks should be taken to get high returns to build a good corpus for your goals. Risk profiling is required for everyone, as you never know your current financial status may allow you a take a moderate risk and this will let your investment grow at a very high rate.

Long term goals also require attention: monitoring and reviewing your goals is something which gets easily forgotten. However it is essential to review your investments especially when the goals are long term. Long term goals can be 10, 15 or 20 years from now, investments for long term needs to be reviewed regularly and if required re-allocation should also be done. Rebalancing your portfolio is a must, in case you have invested in equity for a particular goal, your corpus needs to be shifted to debt few years before achieving the goals. This will help you keep your money safe and lower the risk when approaching the goal.

Financial advisor with his experience will help you make the right investment,purchase life insurance policy which is best for your dependents and can also save you from falling for a bad investment instrument or an expensive insurance policy with the help of his knowledge for the same.
 

Wednesday, 13 March 2013

Career options in financial sector.


A career in financial sector means you would like to work as a financial manager, financial planner and look after the business financial aspects. If you specialize in finance major or minor in your management courses a wide variety of careers are open to you. “let us discuss few careers opportunity available in finance today in India.

Financial planning: A financial planner deals with planning for financial future of the firm. A good financial planner understands, capital market investment, money market investment, real estate, taxes investment basics, there are lot of jobs opportunities available in the above fields as financial planner.

Corporate finance: means a person work as financial manager. Financial manager play important role in planning, designing, implementing and monitoring financial plan & policies and procedure and executing various financial decisions. Corporate financial manager also look out for low cost funds and search profitable investment opportunity in the market.

Commercial and retail banking: today banking industry (SBI, ICICI, HDFC, PNB) are hiring largest number of employers as compared to any other part of the financial service industry. Now recruitment in banking is focusing more on management trainers in field of marketing, finance, HR and financial analyst.

Insurance: the various aspect of insurance are life insurance, loss by fire , theft, accident, medical insurance provides job in marketing distribution ,underwriting , operation . Risk and insurance management job in insurance involves variety of areas working as sales representative, an assets manager, an actuary or provides customer services.

Real estate: real estate field provide jobs in construction real estate appraisal, property management, leasing and brokerage and leasing and development of real estate.

International finance: companies are more interested to appoint financial professional who understand the global business environment and their operation. These financial professional helps companies deal with risk and return associated with company due to international operation and trade practices.

Investment banking: An investment bank is financial institutions that provide investment and other financial advisory services to corporation and high net worth individual’s job in basic includes financing for clients, deal structuring in merger acquisition, as a consultant and advisory services for corporate restructuring. Some investment banks are HSBC, Kotak investment.

Mutual Fund: Mutual fund in India has emerged as critical institutional linkage among various financial segments like saving, capital formation and the corporate sector.