Lessons of Life- Chapter -5- Importance of Financial planning

I would like to share few thoughts on Financial Planning for the benefit of
young earners, based on my experience.

When I joined Treasury in 1974, my Salary was around Rs 300/-pm and in Nov 1980
it was Rs 586/-.My first Salary in IOB, in Dec 80 was Rs 662/-

Thanks to my Dad , who inculcated Savings habit in me, my savings was between Rs
200/- to Rs 300/- pm at that time. This I was able to take out from my old
diary( still I am in the habit of maintaining income and expenditure accounts
and track my savings and investment).

During mid 70s, one can have a good meal at Re1/-, Coffee 0.25 paisa, Breakfast
and Dinner at Re1 each. During 1980, 8 grams of gold was Rs1264/-( Rs158/- per

When I availed Personal Loan for purchase of house hold articles, monthly
instalment was around Rs150/- and I used to envy my Seniors who were having SHL
instalment for the same amount. Later on, when My SHL instalment was around Rs
600/pm-,Juniors whose personal Loan instalments were for the same amount, had
the same look at me !

In our generation, the investment in House out of SHL, became the No 1 wealth
Creator among all investments. In fact, Investment in Real Estate , Equity, gave
the best returns during our time.

Present day Financial Advisors are of the view that investment in real Estate
should be for consumption purpose only ( ie-one House for self occupation) and
their preference for wealth building is Equity and MF investments, starting from
young age.

Some tips for financial planning.

Based on my knowledge and experience, my view on Financial planning is as

Money is not the only thing in life . But it is important to have money in your
hand when you need to spend it.

It is all the more important to earn money in rightful means and save a portion
of it for future. Wealth creation should not become
an obsession and it comes third in my priority list after Health, Enjoyment of
family life (with out self denial of family time in enjoying small pleasures and

Living in the present by closing eyes about the future is also an invitation for
trouble in the later days.

So, When one retires, his/her passive income should be in place to take care of
post retirement life. Fortunate are those who are in the Old Pension Scheme(
Defined Benefit plan with DR linked).

In fact, Old Pension Scheme was a boon . In those days while switching over jobs
to highly paid Pvt Sector , many failed in not factoring this huge benefit.

Those who are in New Pension Scheme should actually plan their retirement and
should remember the importance of Savings more, when they spent freely.

1. Have a plan , financial goal and thrift mentality.

2. One should have adequate Term Insurance Cover with a minimum of Rs 50 lakh/
Rs 1 Crore to start with. The premium would be low when taken at the young age
free of any disease. I feel that this is important, as one can see in their
career, that some friends lost their life at the prime of their career leaving
their family in lurch.

3. Adequate Health Insurance Cover is a must for Self, Spouse and children. Even
if the employer provides the cover, it is better to have alternative cover,
especially after 50 years , so that one can have that cover even after

4. Start savings early and at the young age. One should live with in their

5. Avail Housing Loan/Staff Housing Loan and create a housing asset with a long
term liability. After a period of 10 years, when your salary grow, the EMI
commitment may look thin and affordable. In absence of adequate Term Insurance
cover, it is better to opt for Liability Insurance (Insurance cover on the life
of the borrower for the loan outstanding

6. Most of the well-known Financial advisors are having the following view on
Insurance products.

a. Avoid Unit Linked Insurance Plans.

b. Insurance is not to be considered as investment. Avoid normal endowment plans
, which gives poor returns with inadequate risk cover.

c. Term Insurance is the best, though there is no return on money paid except
life risk cover.

7. Though I was successful in my Financial planning and in my investments, I did
few mistakes also.

a. Invested in ULIP, which gave a poor return. opted for pre closure and
invested in equity with that amount and corrected my initial mistake.

b. I have invested in few LIC –endowment policies with inadequate life coverage.
I corrected that when I was 50, by opting for LIC- Term insurance with an annual
premium of around Rs10,000/-for 10 years as my Life Insurance cover was
inadequate. Though there was no return on the premium paid in Term Insurance
plan I got the comfort of higher coverage.

8. Avoid spending on Credit Cards by availing roll over or credit facility.
Avoid drawing cash over credit cards. It is the easy route to fall in a debt

9. Have a diversified portfolio with proper asset allocation.

10. In our days buying a house on housing loan was considered to be a good
investment. It was time tested and in fact a major source of wealth building for
our generation. Even now, owning one house with a loan is a good investment
strategy. Investment in residential house is better than investment in flats in
terms of wealth creation. ( Land value appreciates and building value
depreciates).For self occupation buying a flat is good .

11. Start a SIP( Systematic Investment Plan ) at a very young age, for
investments in equity, debt . It is better to have a balanced portfolio,
depending upon the financial goals ,with adequate exposure in stocks by direct
investment in equity. Try to save at least 15–25 % of your earnings.

12. Always try to balance your earnings with your savings first, then on
spending and loans. Never take unnecessary loans. Always have reserve and
utilize them and unless no other go, never take loan.

13. Have control over expenditure by maintaining a note or diary. It is better
to have one exclusive account for expenditure and spent from that account for
regular monthly expenses. One can fund the account by beginning of the month.
Twin purpose can be achieved. One can get to know your level of expenses and
also it protects huge money loss in case of online frauds.

14. Have a plan for future events on your career, life, spending and finance.

15. Have a reserve fund on your savings for contingency and urgent situations.

16. Your personal life and health are the most important investment. Do have a
regular health check and do healthy workout every day. Stay healthy and live

17. Ensure Nomination for each class of investment and preserve the records.

18. Keep a diary on your investment / insurance details and contact / RMs phone

Vijayaraghavan r

(Disclaimer- I have no financial or beneficial interest on this and I am not a
seller of any financial products. Readers are advised to take their own informed
decision based on their perception, need and goal).


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