Every person should have a strong financial planning to meet the future requirements of his life. Financial planning does not mean putting all your money in bank deposits or buying real-estate. It is about catering to all your financial needs in your life. Some of the key components of your financial planning are explained below:

Retirement Fund

Retirement fund should be able to take care of your financial needs once you stop working. It should be able to pay for living expenses and meet any expenses related to health care. While building a retirement fund, investors should consider the inflation rates in the economy as high inflation can reduce the real value of the fund. Investment in mutual funds and pension funds are some of the best ways to build retirement funds. Conservative investors can also look for the new options like inflation-indexed bonds as they give returns over and above the normal inflation rate.

financial planning

Health Insurance

In the days when health care costs are increasing rapidly, a serious ailment can eat into your long-term savings. It is always advisable to have a good health insurance policy to cover your health care bills. If you are not too rich and cannot meet your health care costs without dipping into your savings, make health insurance a part of your long-term financial planning. In case the organization where you work provides health insurance, make sure that it covers your entire family.


Life Insurance

Unless you are sure of leaving a vast fortune to your dependents, it is better to have a life insurance policy which can secure the future of your dependents. Life insurance policy can provide a lump sum amount for your dependents during the times of crises in the family. It is better to buy a term insurance rather than investing a large amount in unit linked insurance plans (ULIPs) as the latter have higher expenses and commissions.

Long Term Savings (Longterm Equity and Debt funds and Fixed Deposits)

Apart from the retirement fund, you should also put a substantial amount in long term savings in the form investments in equity, mutual funds, and bank fixed deposits. Long term savings can be used to meet any future emergencies. If they are not utilized during your lifetime, they can be transferred to your heirs in your old age. From the long-term savings of a person, a significant part should be allocated to equity and equity based mutual funds as they give substantially higher returns than other alternatives.

Regular Cash Savings (Money Market Mutual Funds)

Regular cash savings in money market mutual funds or savings bank accounts should be made whenever you have surplus funds. These savings can be used for meeting the routine expenses like payment of insurance premiums and expenses related to house maintenance like payment of kids’ school fees.

Investments in Real Estate

Despite giving lower returns than equity investments, investments in real estate form an indispensable part of the long-term financial planning of a person. Investments in real estate bring social prestige and protects the investor from any wild swings in the financial markets. A major disadvantage with the investments in real estate is their illiquidity. Moreover, due to the lower long-term returns, investments in real estate should be limited to 20 to 30 percent of the total investment portfolio of a person.

A well planned financial portfolio should guarantee you financial future as well as meet your cash and other liquidity requirements in the near future.