Taking stock of financial wealth

Written by P Saravanan | Updated: Dec 31 2013, 14:12pm hrs
As the new year is about to begin, it is essential for every investors to take stock of their financial wealth. Though developing an investment strategy depends on individual investors financial needs, risk appetite, current and desired financial position, etc, it is essential to discuss some of the major areas of concentration such as retirement planning, educational planning, estate planning and insurance which are essential for every individual investor.

Retirement & pension planning

This is an integral part for every individual investor. Here one needs to earn the similar income which will match to that of the earnings prior to ones retirement from the job or profession. Though easier said than done, one needs to plan well in advance so that the same style of living can be maintained post retirement. In order to achieve this, one needs to answer various questions such as how much is the disposable income How much corpus to be built at the time of retirement How one can defer and reduce taxes before and after retirement These are some of the questions that needs to be assessed while building the best-possible retirement plan.

Education planning

College and higher education is an investment for your children or grandchildren for a lifetime. The income gap between graduate and post-graduates has increased significantly over the last decade. With the cost of a post-graduate education on rise, savings, even a little at a time, can make a big difference. The key is to save what you can, and to invest early, and often.

Estate planning

Generally estate consists of items such as car, home, other real estate, furniture, personal possessions, etc. No matter how large or modest, everyone has an estate and something in common which you cant take it with you when you die. Before that one needs to control on how those things are given to the people you care most about. To ensure your wishes are carried out, you need to provide instructions stating whom you want to receive something of yours, what you want them to receive, and when they are to receive it. You will, of course, want this to happen with the least amount paid in taxes, legal fees, and court costs. This is estate planning, making a plan in advance and naming whom you want to receive things you own after you die.

Insurance planning

Insurance is not for the person who passes away, it is for those who survive is a popular saying which explains the importance of insurance planning. It is extremely important that every person, especially the breadwinner, covers the risks to his life, so that his familys quality of life does not undergo any drastic change in case of an unfortunate eventuality. Insurance planning is concerned with ensuring adequate coverage against insurable risks. Proper insurance planning can help you to look at the possibility of getting a wider coverage for the same amount of premium or the same level of coverage for the same amount of premium or the same level of coverage for a reduced premium. Insurance planning takes into account the risks and then provides an adequate coverage against those risks. There is no risk not worth insuring yourself against, and insurance should first and foremost be looked as a step to guard against risks.

To conclude, it is essential on the part of every individual investors to assess whether they have properly structured retirement, pension, education, estate and insurance planning.

The writer is an associate professor in finance and accounting in IIM Shillong