Financial planning: Work on financial plan that utilises tax incentives

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February 28, 2020 1:45 AM

Good planning enables one to meet various challenges at different stages in life and also maximise growth of funds and minimise impact of inflation

Planning for making use of various financial tools is required because for everybody tomorrow’s responsibility is higher than what it is today.Planning for making use of various financial tools is required because for everybody tomorrow’s responsibility is higher than what it is today.

For a financially meaningful and successful life everyone needs to undertake interim or long-term financial planning. However, the first basic requirement is to start early and spend some time in identifying one’s financial obligations. One must evaluate available resources vis-à-vis the objectives relevant to the present as well as the future.

Financial planning is a serious business and requires sufficient sensitivity about one’s responsibility towards one’s life partner, children and also parents. The exercise also requires fairly good knowledge about various financial tools available in the market for saving or growing one’s funds. The fund comes through earning but the fund flows out through various channels, unless the outgo is filtered and a portion of it is retained to be deployed in financial instruments which lead to accumulation as well as growth.

Use various financial tools
Planning for making use of various financial tools is required because for everybody tomorrow’s responsibility is higher than what it is today. By undertaking a prudent financial planning a young man or woman is able to make use of various components of the financial market for securing future of one’s loved ones, fulfilling dreams be it finest education for children, a dream holiday or a lakeside weekend home. One’s dream could also include a very comfortable old age and long term care at the house itself for the parents. One may even think of a very secured and enjoyable retired life for himself.

For financial planning one must make an informed decision in the context of relief provided by the government for enabling people to comfortably provide for financial security for themselves. Such provisions in taxation laws motivate people to widen their savings horizon for reaping various financial benefits by way of planned accumulation or the financial protection when it is needed most. Good planning, therefore, enables one to meet various challenges at different stages in life and also to maximise growth of fund and minimise impact of inflation.

Financial planning & income tax
In India, traditionally the last quarter of the financial year is the time when most people think of financial planning and initiate activities. In the Income Tax Act, various sections such as 80C, 80D, 10(10)D, 80CCC, 80CCD, 80TTA, etc., provide very attractive incentives for those people who want to save and invest money for future.

Sometimes a plan by somebody may become irrelevant in future due to change in one’s circumstances. In such a situation one need not hesitate to give a relook to one’s investment and insurance portfolio. The financial market is intermittently volatile and factors like inflation, government policy, and the rate of growth in GDP etc. continue to upset the given scenario. Hence an individual has to be alert about his financial portfolio and adjust various investments accordingly from time to time. Life insurance products are however quite inflexible hence one must spend fair amount of time in choosing the policy that suits him. Studying and selecting various insurance plans should be considered a serious activity.

Those who are currently considering buying life insurance or pension plans need to be very careful and look at the features of the plans meticulously. Otherwise one can end up with buying a liability instead of financial security or an asset.

Since one’s financial portfolio needs periodic review, one must maintain the records very meticulously otherwise there is a high possibility of losing good opportunities for discarding or enhancing investments. The essence of financial planning is that money is always scarce and a dormant asset till it is deployed in purposeful investments or instruments which ensure financial strength to one when it is needed most.

The writer is former MD & CEO, SUD Life

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