Financial Planning Guide by PNB MetLife for 2020

In the policy the investment risk in the investment portfolio is borne by the policyholder

Financial planning is one of the most fundamental life skills that you should strive to master as early in life as possible. Being smart about your money by focusing on personal financial planning can help you make the most of what you earn. It can also help you plan for retirement and ensure that your funds grow many times over. With the new year rolling in, and with the next tax season following close at its heels, now is a great time to delve into some tips about basic financial planning to help you get savvy about your money.

1. Pay yourself first
   The first rule of financial planning requires that you pay yourself first. What this means, in essence, is that you should save first and spend only what remains. Draw up a budget to identify your obligatory expenses and discretionary expenses. Invest or save up a portion of what remains after you meet your obligations like rent, EMIs, and electricity costs.
   The 50-20-30 rule can help you here. It requires that you set aside 50% of your income for mandatory costs and expenses and invest 20% of your income to meet your short-term and long-term financial goals. The 30% that remains can be spent on leisure and entertainment.
2. Create an emergency fund
   Emergencies can crop up at any point in life. Your car could require overhauling, a medical crisis could come knocking, or you may remain unemployed for several months in-between jobs. Whatever the nature of the emergency, the one thing that remains unchanged is that it can prove to be a heavy financial burden.
   To prepare for such incidents, it’s advisable to have a safety net that you can dip into in case you need extra funds at some juncture. Here’s where an emergency fund can help. Ideally, it’s a safe bet to create a fund that can cover at least 6 months’ worth of expenses.
3. Invest in life insurance
   Insurance is another essential element in personal financial planning. A life insurance cover is an absolute necessity, since it can offer financial support to a family in case of the death of the primary breadwinner. It’s generally prudent to obtain an insurance cover that is at least 10 times your annual income.
   
   If you’re still in the early stages of your career, a term insurance plan is a cost-effective option to consider. These plans generally require very low premium payments. Additionally, the premium paid goes entirely towards covering the risk.
   You can learn more about Term Insurance by browsing the website for the various Term Plans offered by PNB MetLife.
4. Identify your financial goals
   Another key step in basic financial planning is to understand your short-term and long-term financial goals. What do you intend to accomplish in the coming year? What are you goals for the next five years and next ten years? These are the questions you need to answer in order to get a clearer picture of where you’re planning to head financially.
   
   Your goals could include basic things like funding your children’s education and buying a home, or other supplementary objectives like owning a car and taking a vacation each year. Once you’ve identified your financial goals, look into investment options that can help you create the wealth you need to achieve those targets.
5. Focus on tax planning
   Getting to know the details of taxes can seem intimidating from the outside. However, it’s a necessary part of financial planning. You could make use of the many tax-saving investment options available in the financial market.
   
   Investments in life insurance, PPF, NPS, EPF, ELSS, and ULIPs, among other instruments allow you to claim deductions under section 80C. Additionally, if you’ve availed a housing loan, you can make use of the provisions of the Income Tax Act that allow you to claim the interest on that loan as a deduction. Get yourself acquainted with the various exemptions and deductions available for taxpayers, so you can enjoy some tax reliefs.

Bonus tip: Manage surplus cash prudently
If you receive a bonus at work or benefit from a sudden windfall, it can be tempting to splurge that surplus cash on an impulse purchase. While that’s certainly acceptable once in a while, it’s still more prudent to use those extra funds to strengthen your financial position.

For instance, you could use the surplus cash to foreclose a loan that needs to be repaid. Alternatively, if it’s a sizeable sum, you could park it in a deposit or invest it in a single-premium term insurance plan. Another sensible way to utilize surplus cash is to simply stash it away in your emergency fund, so you can strengthen your safety net.

All in all, with these basic financial planning tips, you can begin the journey to a financially smarter future. Keep in mind that when it comes to financial planning, there’s no one-size-fits-all guideline. Your budget and saving habits need to align with your individual financial goals. That’s the best way to maximize your savings and make your investments grow.

The income tax is levied on all earning individuals who fall under a taxable income bracket. The income tax is paid to the Government of India and is charged annually. However, there are several tax deductions and exemptions that you can claim to lower your tax liability. The Income Tax Calculator helps you ascertain your tax output for a financial year based on your taxable income. This can help you plan well and save tax using the tax-saving deductions and exemptions, if possible.