DO IT YOURSELF

FINANCIAL PLANNING GUIDE

BY

RAJESH DALMIA
CERTIFIED FINANCIAL PLANNERCM
[email protected]
I am pleased to present before you the first edition of a very simple “DO IT YOURSELF”
financial planning guide to help you start doing your own financial planning, though it is
always recommended to hire a competent financial planner for a comprehensive financial
plan. This guide is not a substitute to a comprehensive financial plan but this guide will help
you understand some of the basic components of financial planning.

Financial Planning over the past decade has gained importance and become an important
exercise for the well being of a family, due to various fast paced changes, happening in our
family, employment and social life. Financial Planning is a very vast subject taking into
account all facets of risk management, investment planning, retirement planning, Tax
planning & Estate planning in the context of an individual and his family, I have in this guide
included four very important simplified worksheets to work on, by which you can ascertain

1. Your retirement corpus requirement & achieving the corpus to stay financially fit
during your retirement.
2. Your life insurance requirement to make your dependents financially safe.
3. Your Children’s graduate education cost and planning for its savings, so that rising
education cost do not become an obstacle in providing the best education to your
children.
4. Your children’s marriage cost to prepare a saving plan for accomplishing it to
discharge one of the important social responsibility as a parent.

I do hope you will find this guide useful for your financial well being and hope it will be the
tipping point for you to get into comprehensive financial planning exercise engaging a
financial planner.

Please send your feedback to me at [email protected] . Your feedback would help

me in further improving this guide and also to expand this edition to include more
worksheets.

Wish you “Happy Investing & a Financially safe life”.

Regards

Rajesh Dalmia
Certified Financial PlannerCM
[email protected]
 PERSONAL DETAILS SELF SPOUSE
Name

Address

Date of Birth

Occupation

Annual Income

Annual Expenditure

Date of Birth Male / Female

Name of Dependent Children

…………………………………… ………………………………… ……………………………………

…………………………………… ……………………………… ……………………………………

Investment Assets

Scheme Yes No Balance as on date

Provident Fund
Pension Fund
Bank Fixed Deposits
Mutual Funds
Shares
Saving based insurance policy
Post Office Schemes
Any other investment
Any other investment
INSURANCE PROTECTION SELF SPOUSE
Do you hold any insurance Yes / No Sum Assured Yes / No Sum Assured
Life Cover

Total/Permanent Disability

Mediclaim

Accidental death
 Basic Concept & Terminology of Insurance Planning

What is Insurance: Insurance is a risk management strategy, which helps in mitigating risks from our
daily life, which can have financial repercussions. For example A car insurance policy helps in meeting
cost for repairs of the car if it meets with an accident, similarly a life insurance policy provide funds to
meet living needs of dependants in case of earning member’s death.

What is Insurance Planning: insurance planning is the process of insuring that unfortunate incidence
resulting in financial loss are duly compensated by the insurance companies without getting financially
burdened.

Life Insurance: Life insurance provides compensation to family in case of death. Life insurance coverage
is granted by an insurance company based on an individual’s age, earning capacity, medical fitness,
family history and more.

General Insurance: General insurance provides compensation to family in case of loss of insured assets
like House, Car, Furniture, Computers, Burglary etc. It also provides accidental & medical insurance.

Retirement Age: The age at which an individual expect to retire from working life.

Inflation: Inflation is basically the measurement of rising cost in maintaining the same living standards.
For example if inflation is 6% the you can expect to spend 6% more next year on your expenses to
maintain same living standard.

Human Life Value: This is the total insurance requirement calculated in rupee terms for an individual
based on his current earning, expected growth in earning, inflation and retirement age. This is based on
the concept that his earning till his retirement is required by his family for their survival. In technical
terms, it is the present value of all future earning of an individual till retirement age.

Pure life insurance plan v/s Investment insurance plans: Pure life insurance plan are “Term insurance
plan” which covers an individual only in case of death with no survival benefit with comparatively lower
premium payment. While Investment insurance plans have two components, one is pure insurance and
the other is savings component, which is paid on maturity.

Insurance is one strategy, if used strategically, can guarantee fulfilment of life’s financial goals.

(c)Rajesh Dalmia
 DO IT YOURSELF
Insurance Planning Calculation Chart
Annual Growth Insurance
Age Retirement Age Inflation
in Income Required for
Rs
25 10% 60 6% 19.98
26 10% 60 6% 19.69
27 10% 60 6% 19.40
28 10% 60 6% 19.09
29 10% 60 6% 18.78
30 10% 60 6% 18.45
31 10% 60 6% 18.11
32 10% 60 6% 17.75
33 10% 60 6% 17.38
34 10% 60 6% 17.00
35 10% 60 6% 16.61
36 10% 60 6% 16.20
37 10% 60 6% 15.77
38 10% 60 6% 15.33
39 10% 60 6% 14.87
40 10% 60 6% 14.39
41 10% 60 6% 13.90
42 10% 60 6% 13.38
43 10% 60 6% 12.85
44 10% 60 6% 12.30
45 10% 60 6% 11.72
How to use the above chart
For Example
If age is 30 years and current income is Rs 100000 per annum and has a saving of
Rs 5 lacs
Current Annual Income (Take Home) 100000 A
Insurance reqd ratio from above chart 18.45 B
Gross Insurance requirement 1845000 AXB
Investment Savings till date 500000 C
Net Insurance requirement 1345000 (AXB)-C
Calculate your EXPECTED Insurance requirement
Put in your
Your age Rs. Column
age here
Your Current Annual Income(Take Home) A
Insurance reqd ratio from above chart B
Insurance requirement AXB
Investment Savings till date C
Net Insurance requirement (AXB)-C
© Rajesh Dalmia
 Basic Concept & Terminology of Retirement Planning

What is Retirement Planning: Retirement Planning is the process of insuring that there are sufficient
financial resources to provide a desired lifestyle in the retirement years.

Retirement Age: The age at which an individual expects to retire from working life.

Retirement Years: The period between the retirement age and expected life expectancy is Retirement
Years.

Life Expectancy: Life expectancy is the expected age at death of a normal individual and is assumed
based on statistical data published by government agencies.

Inflation: Inflation is basically the measurement of rising cost in maintaining the same living standards.
For example if inflation is 6% the you can expect to spend 6% more next year on your expenses to
maintain same living standard.

Retirement Corpus: This is the total fund requirement as on your retirement age, so that the expected
expenses during retirement years can be fully met. In technical terms, it is the present value of all your
expenses during retirement years.

Investment returns: This is the expected average return on investment made.

Asset Allocation: Asset allocation is basically dividing your investments across different asset class
categories, like Equity, Debt, Commodities, real estate etc based on investment goal and investment
horizon.

Return: Return comes with risk. Investment in Equity based products like Equity mutual funds yields
better results in long term. As retirement planning is a long term investment goal, one can consider
investing in Equity based products till age 50 and thereafter gradually shift to debt based products as
retirement nears.

Safety: Safety of investment is very important in all investment decisions and so is in retirement
planning.

Starting Early: Starting early on an investment plan is an advantage in terms of having more safety,
because of long term horizon, less return requirement and with less investment. For example a person
aged 25 years requiring Rs 1,00,000 at age 60 would require to invest only Rs 15.40 per month, whereas
a person who is 40 year old would require Rs 100 per month.

(c)Rajesh Dalmia
 DO IT YOURSELF
Retirement Planning Calculation Chart
Annual Retirement Monthly
Retirement life Investment
Age Inflation Expense on Corpus Savings
Age expectancy return
retirement required required
p.a. Year Year Rs p.a. Rs Rs
25 6% 60 80 7.69 10% 110.66 0.0323
26 6% 60 80 7.25 10% 104.33 0.0336
27 6% 60 80 6.84 10% 98.43 0.0350
28 6% 60 80 6.45 10% 92.82 0.0365
29 6% 60 80 6.09 10% 87.64 0.0381
30 6% 60 80 5.74 10% 82.60 0.0397
31 6% 60 80 5.42 10% 77.99 0.0415
32 6% 60 80 5.11 10% 73.53 0.0433
33 6% 60 80 4.82 10% 69.36 0.0453
34 6% 60 80 4.55 10% 65.48 0.0474
35 6% 60 80 4.29 10% 61.73 0.0497
36 6% 60 80 4.05 10% 58.28 0.0521
37 6% 60 80 3.82 10% 54.97 0.0547
38 6% 60 80 3.60 10% 51.80 0.0574
39 6% 60 80 3.40 10% 48.93 0.0605
40 6% 60 80 3.21 10% 46.19 0.0638
41 6% 60 80 3.03 10% 43.60 0.0674
42 6% 60 80 2.85 10% 41.01 0.0712
43 6% 60 80 2.69 10% 38.71 0.0755
44 6% 60 80 2.54 10% 36.55 0.0804
45 6% 60 80 2.40 10% 34.54 0.0860
How to use the above chart
For Example
If age is 30 years and current expense is Rs 100000 per annum then Rs.
Expense on retirement would be 100000 x 5.74 574000
Retirement corpus required would be 100000 x 82.60 8260000
Monthly investment required would be 100000 x 0.0397 3970

Calculate your EXPECTED Expense on retirement, Retirment corpus and Target saving reqd per month
Substitute
Current
here ratio Rs.
Your age Annual
from above =AxB
Expense
table
A B
Expense on retirement would be x
Retirement corpus required would be x
Monthly investment required would be x
© Rajesh Dalmia
 Basic Concept & Terminology in Investment Planning

What is saving: Saving is the amount saved from your regular income like employment income, business
income. It does not take into account the investment returns.

What is Investment Planning: Investment planning involves putting your savings to earn above average
return with fair safety and less risk based on concepts like asset allocation, compounded growth rate,
risk management, starting early etc.

Future value of a Goal: For all investment planning it is important to figure out the actual requirement
of funds as on the event happening date. For example Today your daughter’s age is 5 years and assume
the cost of marriage today to be Rs 10 lacs approx. You plan to see your daughter marry at age 25 then
calculating the cost of marriage after 20 years taking the today’s cost as benchmark is basically the
future value of goal of your daughter’s marriage.

Inflation: Inflation is basically the measurement of rising cost in maintaining the same living standards.
For example if inflation is 6% the you can expect to spend 6% more next year on your expenses to
maintain same living standard.

Rising cost of Education: Cost of education is rising much faster than the average cost of living and
therefore it is safe to assume a higher cost than running inflation.

Investment returns: This is the expected average return on investment made.

Asset Allocation: Asset allocation is basically dividing your investment basket across different asset
class categories, like Equity, Debt, Commodities, real estate etc based on investment goal and
investment horizon. For example for short term investment the asset allocation should be 100% in debt,
while for medium term investment, the asset allocation can be 50:50 in equity & debt respectively.

Return: Return comes with risk. Investment in Equity based products like Equity mutual funds yields
better results in long term. For someone who plans for children education before the age of 5, it can be
termed as a long term investment goal and asset allocation can be in favour of Equity based products till
14-15 years and thereafter gradually shifting the preference towards debt based products as goal
approaches.

Safety: Safety of investment is very important in all investment decisions and so is in retirement
planning.

Starting Early: Starting early on an investment plan is an advantage in terms of having more safety,
because of long term horizon, less return requirement and with less investment. For example a person
aged 25 years requiring Rs 1,00,000 at age 60 would require to invest only Rs 15.40 per month, whereas
a person who is 40 year old would require Rs 100 per month.

(c)Rajesh Dalmia
 DO IT YOURSELF
Children Education Planning
Current
Education Assumed Education
Graduation Investment Monthly Savings
Age Cost to rise expenses on Corpus required
Joining Year return required
per year by Graduation at age 18
Education
p.a. Rs p.a. Rs Rs
0 10% 18 1 10% 5.560 0.010
1 10% 18 1 10% 5.054 0.010
2 10% 18 1 10% 4.595 0.010
3 10% 18 1 10% 4.177 0.010
4 10% 18 1 10% 3.797 0.011
5 10% 18 1 10% 3.452 0.011
6 10% 18 1 10% 3.138 0.012
7 10% 18 1 10% 2.853 0.012
8 10% 18 1 10% 2.594 0.013
9 10% 18 1 10% 2.358 0.014
10 10% 18 1 10% 2.144 0.015
11 10% 18 1 10% 1.949 0.016
12 10% 18 1 10% 1.772 0.018
13 10% 18 1 10% 1.611 0.021
14 10% 18 1 10% 1.464 0.025
15 10% 18 1 10% 1.331 0.032
16 10% 18 1 10% 1.210 0.046
17 10% 18 1 10% 1.100 0.087

How to use the above chart

For Example
If age is 5 years and current expected graduation expense is Rs 1000000 then Result
Rs x Ratio Rs
Education Corpus Required 1000000 x 3.452 3452000
Monthly investment required 1000000 x 0.011 11000

Calculate EXPECTED Expense on Graduation Education of your child and Target saving reqd per month
Current
Child Age Substitute here
Put here expected
as on ratio from Result
child age graduation
Today above table
expense
A B AXB
Rs x Ratio Rs
Education Corpus Required 0 x 0 0
Monthly investment required 0 x 0 0
© Rajesh Dalmia
 DO IT YOURSELF
Children Marriage Planning
Current
Marriage Marriage Corpus
Assumed Assumed Investment Monthly Savings
Age Cost to rise required at age
Marriage Age expenses on return required
by (Inflation) 25
Marriage
p.a. Rs p.a. Rs Rs
0 6% 25 1 10% 4.292 0.0035
1 6% 25 1 10% 4.049 0.0036
2 6% 25 1 10% 3.820 0.0038
3 6% 25 1 10% 3.604 0.0040
4 6% 25 1 10% 3.400 0.0042
5 6% 25 1 10% 3.207 0.0044
6 6% 25 1 10% 3.026 0.0047
7 6% 25 1 10% 2.854 0.0050
8 6% 25 1 10% 2.693 0.0053
9 6% 25 1 10% 2.540 0.0056
10 6% 25 1 10% 2.397 0.0060
11 6% 25 1 10% 2.261 0.0064
12 6% 25 1 10% 2.133 0.0069
13 6% 25 1 10% 2.012 0.0074
14 6% 25 1 10% 1.898 0.0081
15 6% 25 1 10% 1.791 0.0089
16 6% 25 1 10% 1.689 0.0098
17 6% 25 1 10% 1.594 0.0110
18 6% 25 1 10% 1.504 0.0125
19 6% 25 1 10% 1.419 0.0145
20 6% 25 1 10% 1.338 0.0173

How to use the above chart

For Example
If age is 5 years and current expected marriage expense is Rs 1000000 then Result
Rs x Ratio Rs
Marriage Corpus Required 1000000 x 3.207 3207000
Monthly investment required 1000000 x 0.0044 4400

Calculate EXPECTED Expense on Marriage of your child and Target saving reqd per month
Current
Child Age Substitute here
Put here expected
as on ratio from Result
child age marriage
Today above table
expense
A B AXB
Rs x Ratio Rs
Marriage Corpus Required 0 x 0 0
Monthly investment required 0 x 0 0
© Rajesh Dalmia
 Chart showing classification of Goals based on time horizon with suitable investment products & Asset allocation

Goals Time Horizon Financial Goals Example Investment vehicles Asset Allocation
Buying a Car, Down payment for
Bank fixed deposits, Mutual fund 70-80% in Short term & long term
buying a house, Planning a
Short term Goal Less than 3 years Debt products, Monthly Income debt products. 10-20% in equity
vacation, Nearing to a medium
Plans, Bonds etc products
term or long term goal
Bank fixed deposits, Mutual fund
Education of Children, 60-70% in long term debt
Debt products, Mutual fund
Medium term Goal 3 - 6 years Downpayment for buying a house, products. 30-40% in equity
balance funds, Bonds, P.O.
Social & religious Obligations products
savings scheme, Large cap stocks

Equit based schemes preferably

50-70% in equity products with
Children education & Marriage large cap, long term debt
Long Term Goal 6 - 10 years some exposure in long term debt
planning, products & commodities like Gold
products, gold & silver etc.
& Silver

Equit based schemes preferably Mostly in equity products with

Retirement planning, Estate
Very Long Term Goal 10 Years & above large cap & medium cap stock some exposure in commodities
Planning
based funds. like gold etc.

Asset allocation is a very dynamic strategy. A very long term goal like Retirement Planning becomes a long term goal when an individual wishing to
retire at age 60 turns 50 and at that point, the asset allocation needs to be reworked and aligned accordingly. Similarly on reaching age 55 again it
needs to be changed.