Human being wants to become which and only way by hard working. If in today’s world, you earn 10k or 20k, 100k or 200k. It’s not sure whether you will be rich or poor. Your financial planning will be going to tell you about this. So, We are going to talk about financial planning.
How can we become rich in the long-term? If you are 20 right now and when you turn 60 then you will be rich how? We are going to talk about the strategies in detail. First of all, we’ll understand what is financial planning?
What is Financial planning?
We have to understand some principles before understanding this. Suppose there are two friends. A friend who earn 10k per month. And the other one earns 100k per month. But the person earns 10k who saves 5k every month.
The one who earns 100k who doesn’t save anything and spend all the money. As the time passes by and after 40 years. The person who used to save 5k every month can earn a lot using the compound interest. So he will earn a lot of money.
The one who was earning 100k every month. How much is he going to have? Only his current salary. But the other one was also getting the interest on his savings.
So, the definition of financial planning according to me is a way of becoming rich. So I hope you understand the need of Financial planning by this example.
3 main components of financial planning
1. Investment planning
Let’s first understand the Investment planning. How we should invest in the right way. There are three different types of investments.
The first one is in stock.
The other one is shares and
the last one is cash.
If you are earning X amount and want to invest it in savings. You can put that money in a savings account, or fixed deposit. You can also withdraw it and save it in your home.
That money won’t get multiplied. You will get 6% return from Bank. But if you check the growth rate of India, it is higher than 6%. Then indirectly, it’s a loss for you. If you think of taking an interest from your saved money.
In the share market, you invest the money for a long period. You might get a 12 to 20% return. You can see the states of the Coca-Cola company in this photo.
You can see that the amount of growth in Coca-Cola shares had in the past. If you would have invested in the stock beginning or your parents would have. Then just think of the money you might have today.
Next thing is bonds. They can be government-owned or privately owned. They are just like giving a loan to a company and you will get interest on that.
Third thing is cash. We should have some of the emergency. Suppose we get in a situation where we need urgent cash. Then what are you going to in that it? Go for bond, FD? Probably not.
You can withdraw money from the bank. But I am saying to save money in the bank and that’s why you should always have some cash.
2. Insurance assessment
Next is which is bad in our country is “Insurance”. In this, our country people do not like to do insurance. You need to have a medical and life insurance too.
I will tell you the reason. You may be earning a lot of money. But if you get a disease. Due to this your job all business gets over. So your revenue gets stop.
That way you need insurance. So if you had a medical insurance, then it had all your problems gets reimbursed there.
life insurance means if something happens to you then you are family gets save via this Life Insurance.
Suppose you are earning Rupees 1 lakh a month. You are saving Rupees 20,000 a month or 30,000. You spent rupees 70,000 according to your status.
But if something happens to you. Then where you will get these rupees 70,000 will after you, your family living of same standard with worse?
So here, Life Insurance will help you out.
In this Suppose, I earn 1 lakh per month and rupees 12 lakh per year and 12 lakhs into 20 means 2 crore and 40 lakhs by 20 years. This much you earn if you navigate and plan properly. So do check the terms and plans and why it is for this much of time.
If something happens to you then all the money is given to your family. If they put in a bank then the interest will be as much to run your family. Means if my income Rs. 1 lakh and if I will put this insurance money in the bank. Then, I will be getting the interest of Rs. 1 lakh per month. So that’s why this is important.
Some plans like LIC you need to check both the plan. There it says you have a life insurance you need to invest in too. Like above. But if you calculate, you will be getting the return very less. So, play smartly and understand all the terms and conditions wisely.
3. Retirement planning
Next is retirement planning. So how will I be running my home after retirement? So for this also they have a lot of plans for it. So if you are under 30, then you must have a retirement insurance.
One tip more, things which are required to take this and do take one good thing. This reduces your overall costing.
I hope you understand what is financial planning? and how can we become rich by Financial planning? If you like please share this article with your friends and your relatives.
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