{"id":6051,"date":"2020-03-01T08:53:59","date_gmt":"2020-03-01T03:23:59","guid":{"rendered":"http:\/\/capitalante.com\/?p=6051"},"modified":"2020-03-09T12:05:30","modified_gmt":"2020-03-09T06:35:30","slug":"financial-planning-mistakes-to-avoid","status":"publish","type":"post","link":"https:\/\/capitalante.com\/financial-planning-mistakes-to-avoid\/","title":{"rendered":"Top 10 Financial Planning Mistakes to Avoid"},"content":{"rendered":"

The lifespan of people has increased due to financial development, medical advancement, health consciousness, etc. The average lifespan is now 75-80 years according to the latest survey report. So, you need to make proper financial planning to lead a happy retirement life without financial woes and tension. In order to make this happen, you need to avoid financial planning mistakes. Here we will discuss the top 10 financial planning mistakes to avoid for a secure and prosperous life even after retirement.<\/span><\/p>\n

Top 10 Financial Planning Mistakes to Avoid<\/span><\/strong><\/span><\/h2>\n

Saying yes all the times<\/span><\/strong><\/h2>\n

After getting first income an average individual does not think about savings and reinvestment of the money. The first thing he does is he goes to the restaurant with his friends and spends lavishly. He makes unnecessary enjoyment with his money. Apart from that this type of person tends to buy unnecessary items owing to attractive EMI options at affordable interest rates. Finally, he is left with no savings at the end of the month.<\/span><\/p>\n

Solution<\/span> – You should divide your post-tax income into three parts and allocate every part for every sector. Your income will be divided as 50% on needs, 30% on wants and the rest 20% for saving. Surround yourself with financially educated and conscious people from whom you can learn about financial planning. Also, make sure that your group of friends comprise people who share similar financial goals.<\/span><\/p>\n

\"50\/30\/20<\/a><\/p>\n

Ignoring retirement planning in the younger age<\/span><\/strong><\/h2>\n

After getting a job most people think that they are too young to plan for retirement. They believe that they have much time to plan for retirement. They ignore this vital thing that early planning will secure financial needs after their retirement.\u00a0 Like this, they spend years after years and when the age of 60 comes close they find themselves with very little savings for the post-retirement life.<\/span><\/p>\n

Solution<\/span><\/strong><\/h2>\n

In order to make a perfect retirement planning, you must have a clear view and a good understanding of the expenses that will be required to live after retirement. Let\u2019s make it clear with the following example,<\/span><\/p>\n

Suppose you have started earning at the age of 25 years and your earning is Rs. 25000\/- monthly. So, you have got 35 years to achieve a sufficient amount in order to make a happy and prosperous retirement life.<\/span><\/p>\n

Your yearly salary is \u2013 Rs.3, 00,000\/- assuming Rs. 25,000\/- a month.<\/span><\/p>\n

Your yearly Household Expenses \u2013 Rs. 1, 80,000\/- assuming Rs. 15,000\/- a month.<\/span><\/p>\n

Term insurance premium \u2013 Rs. 7,000\/- assuming assured sum of Rs. 1 crore for a term of 30 years.<\/span><\/p>\n

Health insurance premium \u2013 Rs. 8,000\/- assuming a cover-up to Rs. 5 lakh\/ year for a term of 30 years.<\/span><\/p>\n

Expenses on festive season = Rs. 25,000\/-<\/span><\/p>\n

Total Expenditure<\/strong><\/span><\/h3>\n

So, your expected expenses throughout a year is = Rs. 1, 80,000\/- + Rs. 7,000\/- + Rs. 8,000\/- + Rs. 25,000\/- = Rs. 2, 20,000\/-.<\/span><\/p>\n

Then, the expenses at the age of 60 years assuming a current inflation rate of 7% will be = Rs. 21 lakh. [Excluding term insurance premium and health insurance premium since they are fixed at the time of buying].<\/span><\/p>\n

So, you have to accumulate a corpus of [Rs. 21 Lakh \u00d7 20 years = Rs. 4.2 Crore] at the age of 60 years assuming you will live at least 80 years.<\/span><\/p>\n

\"Financial<\/a><\/p>\n

Does not have any financial goal for future obligations apart from retirement<\/span><\/strong><\/h2>\n

After getting a job most people think that they are too young to plan for future obligations such as education cost and marriage cost of children. They imply why he should think even when he is not married yet. But you need to think earlier for one day you will get married and have kids.<\/span><\/p>\n

Suppose at the age of 30, you stay with your family in any rented house and you have got one son and one daughter. So, in order to meet the future obligations like to own a house, the education cost of son and daughter, the marriage cost of daughter you need early planning. Let\u2019s understand it.<\/span><\/p>\n

Total cost for the higher education of your daughter and son, let\u2019s say after 15 years after they passed 10th<\/sup> standard, = Rs. 50 Lakh.<\/span><\/p>\n

Marriage cost of your daughter including inflation = Rs. 30 Lakh.<\/span><\/p>\n

Amount needed to buy a house after 20 years including inflation = Rs. 1 Crore.<\/span><\/p>\n

Solution<\/span> \u2013 Since they are long term goals, in order to meet future obligations, you need early planning. Let\u2019s discuss,<\/span><\/p>\n

To meet the education cost<\/span><\/strong><\/span><\/h3>\n

If you start investing in any equity-oriented mutual fund for the period of the next 15 years with just Rs. 4000\/- per month then you will get Rs. 50 lakh after 15 years assuming 15% CAGR.<\/span><\/p>\n

To meet the Marriage cost<\/span><\/strong><\/span><\/h3>\n

If you start investing in any equity-oriented mutual fund schemes for the period of the next 20 years with just Rs. 2000\/- per month then you will get Rs. 30 Lakh after 20 years assuming 15% CAGR.<\/span><\/p>\n

Fund to buy a house<\/span><\/strong><\/h3>\n

If you start investing in any equity-oriented mutual fund schemes with just Rs. 7000\/- per month then you will get Rs. 1 Crore after a span of 20 years assuming 15% CAGR.<\/span><\/p>\n

Underestimate the insurance and cost of healthcare<\/span><\/strong><\/h2>\n

Young people have a common perception that they are superhumans. Nothing can do any harm to them. It is because they are full of energy, enthusiasm and can overcome any situation. As most of the term insurance policies have no monetary benefit on the survival of the policyholder, so people consider term plan policies worthless. But here the most vital question arises what will happen if you die untimely or to say suddenly. In addition to this while taking a mediclaim policy, they ignore the fact that they will go old too. Most insurance companies do not offer insurance policy after 45 years if they allow, they will check the medical check-up. After the check-up, they allow or reject the application.<\/span><\/p>\n

Solution<\/span><\/strong><\/h3>\n

What your family will have to face on your sudden demise if you have taken a home loan or car loan or education loan? It is a big question. Here comes the role of term insurance plans. Term plans can ensure the future of your family. In the case of health insurance policy even if you are young 10-20 day hospitalization costs sway all of your savings. So, take insurance policy at a younger age. You need to pay a lesser premium if you take a term plan or health insurance plan earlier.<\/span><\/p>\n

\"Term<\/a><\/p>\n

In the case of Term Insurance Plan<\/strong><\/span><\/h3>\n

Suppose, you buy a term plan at the age of 25 and you want to continue this plan till the age of 60 years and a sum assured is Rs. 1 Crore. So, the duration of the term plan is 35 years. If you choose a Term Plan at the age of 25 then you have to pay Rs. 6800\/- per year. If you choose a Term Plan at the age of 30 then you have to pay Rs. 8300\/- per year instead of choosing a term plan at the age of 35 that costs Rs. 10,200\/-. So, you have to pay a lesser premium at the age of 25 instead of at the age of 35.<\/span><\/p>\n

\"Term<\/a><\/p>\n

In the case of Health Insurance Plan<\/strong><\/span><\/h3>\n

If you take a family floater plan at the age of 30 years of Rs. 5 lakh and the plan consists of self, your spouse and 2 dependent children, you have to pay Rs. 11,000\/- on a yearly basis. But if you take the same plan at the age of 40, you have to pay Rs. 16,000\/- on a yearly basis. So opt for a family floater plan as early as possible. It is better to take a family floater plan just after marriage and later you can include your children.<\/span><\/p>\n

Don\u2019t maintain debt judiciously<\/span><\/strong><\/span><\/h2>\n

Usually, an individual takes a loan to build his\/her own nest on an easy EMI option either a monthly or quarterly basis repayment from banks or any other financial institutions. In addition to this, the individual applies for a car loan.\u00a0 After the withdrawal of home loans and car loans, people get trapped in a vicious cycle.<\/span><\/p>\n

\"financial<\/a><\/p>\n