Aspects to keep in mind

Earlier it was seen that Indians were not investing their savings in the right direction. Recently I witnessed a shift in this paradigm especially  with the youth. When we plan for a couple with a joint monthly income of Rs 2 lakh and an eight year old child, the percentage of income saved plays a very important role. After eliminating household and loan expenditure you should save approximately 40% of income to effectively plan for your future.

Risk management
Risk management refers to the purchase of protection which provides you financial security in case of an unforeseen event. Typically the definition of insurance is confined to the purchase of life insurance and medical insurance. But these policies do not cover you in case of a partial or a total disability, when your medical expenses go sky-high and the need for financial security is utmost. The remedy is to have a personal accident and a critical Illness policy in place.

Typically the medical expenses for an individual increases with age. As one gets older either the premium for the policy increases radically or it is difficult to get a cover. Hence it is very important to create a medical corpus over and above your medical insurance to safeguard you in the future.

One more area of concern should be asset insurance. Asset insurance covers home insurance, motor insurance, liability insurance etc. These assets take years of hard work and hence it is it imperative to have sufficient protection in place.

Short-term strategy
Short-term needs for the abovementioned family can be categorised into contingency needs and short term aspiration goals for self or the family. Contingency needs refer to short term unforeseen financial needs of you, friends and family. The reason why friends and family are given a mention is because they often look upon us in case of an emergency so we need to provide in case we wish to contribute or spend in their contingencies.

Aspiration goals can be buying a new car, going on a vacation, creating an asset or any goal for a short term period. The right approach for these goals should be to invest in debt oriented products that typically provide less volatility of the principal. Major consideration should also be given to liquidity and the exit loads of the investments, and tax implication etc.

Long-term strategy
Long-term goals can be narrowed down to childs education, marriage, retirement planning or any other asset creation goals. While planning for our child's education we typically make a provision for the high school and university fees.

But we do not give due consideration to his/ her inclination towards sports and other arts and the requisite expense to professionally train the child in his/ her area of inclination.

While planning for your child's marriage you should evaluate your culture and lifestyle because in India marriage expenses are very volatile and directly linked to your culture and there can be volatility within a specific culture according to the lifestyle.

Retirement planning should be given priority because at retirement your earning capacity declines drastically and your savings is all you have to rely upon. The earlier you start investing, the better the chances are that you will have desired amount of wealth at retirement.

While planning for long term goals one should start with a major portion of the investments in equity. The portfolio should gradually move towards debt when you approach your goal. Consulting the right advisor or planner is recommended for every family to get a comprehensive financial strategy for themselves.