Financial Planning - Hum Fauji Initiatives

17 Dec 2020

Blog Sanjeev Govila 0 comment

With new year in sight, time to revisit your financial plans

As 2020 draws to a close, there is glimmer of hope all around. The Indian economy’s performance in the July-September period, though not yet great, is far better than the previous quarter. Every passing day has some more good news with respect to the vaccines for Covid-19. With all this, we are all hopeful that 2021 will be better than 2020. And 2020 would be soon forgotten…

While that still needs to be seen, what is also important is that we remain prepared on our end. As finances play a critical role in almost all spheres of our lives, it is imperative that we are on top of our financial planning game.

So, here we bring to you a very small checklist to re-evaluate your financial plan for the new year.

1. Adequate Insurance Cover

The year 2020 made it very clear to all of us that it is extremely crucial to have adequate insurance in place for ourselves and our families. This is true for both health, life and other insurances.

Over time, the cost of healthcare in the country is going up, and so is the overall cost of lifestyle. What seemed adequate coverage 3-4 years back, might not be adequate today. So, if you do not have a satisfactory health wellness coverage, do introspect and take action.

If you have taken on additional liabilities in the recent past like a big home loan, then it becomes doubly important to enhance your life insurance cover accordingly.

Other than life and health insurance, ensure that your important assets like your car or your home have the required insurance, depending upon factors like climatic conditions of your place of residence or the places you usually drive to for work.

2. Invest idle money – wisely

This one is slightly tricky.

What happens is that we have our fixed SIPs every month. However, from time to time, there is some surplus inflow of money either as a bonus or a gift, and it keeps lying either at your home in cash, or in your bank account, earning below-par returns. This is also true when you get a raise and similar thing happens on a monthly basis.

The tricky part is you suddenly realise that you have this surplus and decide to invest it as a lump sum. At this stage, it becomes important to be careful where you are putting this money.

For someone, this money could be best used for pre-paying a loan, for someone else, keeping it idle for a few months could be best as they have a financial goal pretty close.

So, the answer will be different for each individual; hence, do not look for one-size-fits-all solutions for this one.

3. Update your documentation

This might sound to be the most mundane (and boring!) of things, and in some cases daunting too. Over the years, many people end up changing their place of residence or getting married. There could also be other changes in people’s lives.

Accordingly, it becomes important to have all your KYC details up to date.

Very importantly, having a basic Will in place is a good practice, though we are aware many people shy away from a conversation on this point. But trust us, a mishap comes unannounced and the family is left in a state of panic when they find that the documentation is scattered all around. We have also seen family’s dirty linen being washed in full public view, just because there was no Will in place as people thought it to be too trivial a thing or that it can always be done later – ‘I’m not going anywhere any time soon’.

This list is, of course, not exhaustive.

We have also assumed that all our readers are already doing the basic things right, hence the list above is of slightly sophisticated nature. For beginners, we will have another new-year checklist soon.

12 Aug 2018

Blog Sanjeev Govila 0 comment

Writing of Will and A sample format by Hum Fauji Initiatives

We have amended the format of Will which we had been sending to you and to our Financial Planning clients. We have made it in a word format so that you can edit it as you deem fit to suit your requirements. Also, we neither have, nor intend to have a copyright to this format – hence, you can freely distribute this format to anybody whom you wish to benefit. The format should largely meet the requirements of most of the families and may not require any major changes in most cases.

Please remember that there is no fixed format of a Will and it can be written in a manner that you find best suited to you. However, there are certain guiding points which you may find useful while preparing this important document:-

You need to be at least 21 years old to write a Will. Do use the title ‘Last Will And Testament Of (state your name here)’ to make it clear that the document is your Will.
State your full name, current address, and state that you are of sound mental state and under no duress from anyone to make the Will. Also name an Executor, a person who will carry through the tenets of the Will. You can name your spouse or the main beneficiary. If you are nominating an outside person to be the executor of your will, you must ask their permission first. If you have minor children, you must also indicate a guardian for them in your absence.
Your Will should be Simple, Precise and Clear. Otherwise there may be problems for the legal heirs. It is always better to take the advice of a trusted advocate when writing your will.
A Will must always be dated. If more than one Will is made then the one having the latest date will nullify all other Wills.
It is better to make a Will at a younger age. As and when events or changes in the family necessitate changes the Will can be changed.
A Will can be hand-written or typed out. No stamp paper is necessary. You can write a Will on a simple A4 piece of paper, sign and date it with witnesses and keep it in a secure location. It is often recommended to write your Will in your own handwriting as this can be verified later if there are any doubts raised by relatives.
Each page of the Will should be serially numbered and signed by the Testator (that is you) and the Witnesses. This is to prevent the Will being substituted, replaced, or pages being inserted by people intending to commit fraud. At the end of the Will you (the Testator) should indicate the total number of pages in the Will. Corrections if any should be countersigned.
If there are too many changes in the Will, it is better to prepare an entirely new Will rather than making modifications to an old Will.
It is not compulsory for one to register a Will with the Registering Authority, but in case any property or asset is given to any charitable organization, then registration should be done.
A Will becomes operative only after the demise of the person making the Will i.e. the Testator. There is no restriction in the way you can deal with any assets even after making a Will.
If possible, have the two witnesses be a doctor and a lawyer. A doctor signing a will, won’t raise any question of you, being of unsound mind. The lawyer, will vet the will and make sure you don’t make stupid mistakes at the time of writing and signing it.
The attesting witness and his or her spouse should not be a beneficiary under the terms of your Will. This might create vested interests and sometimes make your will invalid. Also, make sure the witnesses are younger than you and not very old as your will might be in effect for several years! And you want them to be present in this world
Write your will on good quality thick white paper so it doesn’t get spoiled over a period of time. It should be stored in a plastic envelope in full size, without folds.
Note that you should keep just one more copy of will and stored separately from the original will. The will must be stored very safely in your bank, in safe deposit box. You must also inform your next of kin, as to where you have stored your will. Do not make many copies of your will.
In case of Hindus, it should be clearly stated if the property is inherited or not, because it makes a huge difference, as no ancestral property can be assigned to any person through a will. All rights on inherited property are acquired by birth. So if you inherited a property from your Father, you cannot say in a will, that you want to assign it to person X only! It will go to all your legal heirs as it is “Inherited”
The value of assets often fluctuates, so it is better to mention how much each beneficiary will receive, in percentage terms rather than absolute numbers. Unless it is pure cash.

Claim the free sample of will here.

26 Jun 2018

Blog Sanjeev Govila 0 comment

Financial Planning for your earning child?

‘I hope my son doesn’t manage his money like I did when I was his age!’‘

Don’t think my daughter knows that there’s life beyond 20s too…she at least spends so and has saved maybe Rs 10,000 in the past four years that she’s been working.’

‘I’ve given up Sanjeev. My kids have categorically told me not to talk to them about saving anything from their salary. When they need any money, I’m their ATM…and mind you, they earn almost as much as me, with no responsibilities.’

While we’re not going to dwell on the parenting aspects of your life, we can definitely give you some idea of how your children should go about their financial lives and end up much better than where they seem to be headed now. Ease it in gently into your children and we’ve seen some good results come in even from ‘hopelessly-given-up’ parents!!

A few points before we go ahead with Financial Planning of our Earning Child:

If your children are working in the corporate, they’ll not get the fauji type life insurance, life-long medical cover, DSOPF and very importantly, the pension. Each and everyone of these will have to be carefully planned and meticulously executed.
If they are in the armed forces, they will have some benefits but other bigger financial requirements will have to be planned for by them, which most of us didn’t do in our time!
Long term thinking will be the key. If a Harley Davidson, Europe vacation or expensive guitar is being funded by dipping into the retirement corpus, the retirement will definitely not be a ‘golden period’ of life.

There are basically five things that your child in the corporate needs to take care of for life-long financial independence. For children in the armed forces, skip out Points 1 and 2 below. It is also very important that different financial baskets are made for all the important requirements and are not violated. Let’s look at them then:-

Life Insurance

Before even a single investment is done, protection umbrella over those who are financially dependent on your earning son or daughter is a must. Only and only Term Insurance Plan should be taken. A cover of about Rs 1 Crore should be the starting point, which will cost just about Rs 8000 per annum for a 40 years’ policy for a 25 year old male son, even lesser for a daughter. But it should be taken only if the person has anybody else financially dependent on him/her. Eg, if not yet married, no life insurance cover is required as yet.

Medical Insurance.

Another must for your son/daughter. Please remember that if the child’s monthly basic income is more than Rs 9000, the child is not dependent on you irrespective of age or marital status. A no-frills basic Medical Insurance cover of Rs 5 Lakh is adequate for most children. If the son/daughter is married, generally a Family Floater cover is more advantageous and Rs 10 Lakh of cover is adequate. Factor in the cover available from the employer too if a long term employment is visualised with the current employer.

Provident Fund.

PFs, including DSOPF, are meant for imparting financial security in one’s life against job loss or retirement. Most of the employers provide EPF (Employee Provident Fund – rate of interest 8.65% currently) where both, the employee and employer contribute. In any case, a PPF (Public Provident Fund – rate of interest 7.6% currently) account should be opened and kept alive by depositing the minimum Rs 500 per annum. When EPF is there, prefer EPF over PPF due to higher rate. When not, PPF can be progressed. Both have a ceiling of total Rs 1.5 Lakhs contribution per annum and double up as 80C tax saving avenue.

Retirement Corpus.

This is the biggest financial bugbear in the civilian world. Taking life time to be 85 years and working time to be 50-60 years of age, at least 25 years of good life needs to be lived after retirement. Considering their faster burn out, current generation is dreaming of retirement at even 40 years of age! Taking out last 10 years as sedentary years, at least 15 years of active life has to be lived without any income coming in. Two good options are there – National Pension Scheme (NPS) or Retirement Mutual Funds. Both have their positives and negatives. NPS has a some additional tax benefits, and annual recurring charges are very less. MFs have more flexibility, many more options and withdrawals are much easier. Totally avoid pension plans given by Insurance companies.

Investments.

This is what one saves for meeting life’s various financial goals, emergencies and for maintaining a good lifestyle. At a young age, equity or stock market investing is a must and no better avenue for that than Equity Mutual Funds (MF). Similarly, Debt MFs provide a better alternative for safe investments over bank FDs, RDs and the likes. Thus overall, the MF bouquet of Equity and Debt MFs can fulfil the entire investment needs for long as also short investing horizon in a better manner in terms of returns, tax-efficiency, flexibility of investment and withdrawal, and time period than any other investing avenue.

80C Tax Saving needs can be easily met by the investment combination of EPF/PPF/DSOPF and MFs.

In a nut shell:

Term Insurance for life insurance needs.
Medical Insurance if required.
DSOPF/EPF/PPF in that order of priority for PF requirements.
Saving for Retirement corpus is a probably the most critical of all investing, if will not have a pension.
Mutual Funds are the best vehicle for investments.

Do you need help in managing your child finances, or for your financial planning of your earning child write to us and we will help you for sure.

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