Six steps for personal finance plan:
1. Saving: There must be minimum 6 times the amount you spend monthly. i.e. monthly expenses = 25000 then there must be 1.5 Lac in your savings account for the smooth running of daily expenses incase you loose job for next 6 months. You may invest this money in insta redemption funds.
2. Loans: Payoff the bad loans (High Interest more than 10) first like personal, car, etc. Good loans- Home loan etc.can be kept for long time.
3. Insurance:
a. Life/Term insurance only for earning members of the family. That's the 20 times the annual income of the earning member will be basic life cover + optional (critical illness cover)
b. Health insurance: For every family member. i.e. 2 Lac per person in the family atleast.
Note: Never combine insurance with investment like endowment, money-back etc. This is a marketing strategy only.
4. Investment Plan: 20% of total monthly income must be invested.
a. Equity: Stocks and Mutual Funds. Must be consulted for an expert before going into it.
b. Gold: Don't go for jewelry. Go for gold bonds only through banks.
c. Real Estate: Buy a home, shop with home loan only for personal use only.
Note: The investment plan is always based on risk profiling.
5. Tax Plan: Only for who earn more than 6 lac. Use ELSS and PPF, NPS. Use tax reduction instruments.
6. Retirement Plan: Use any SIP calculator or NPS calculator for annuity payments so that you may get 12% CAGR with a monthly income of 55000-60000 after you turn 55. This will give you an amount that how much you need to invest per month for your retirement.
