A recent news item regrading the wife of an airlines employee committing suicide due to financial distress created lot of noise. She claimed that her husband was not paid salary for 4-5 months and that created lot of financial problems. The story of suicide by farmers has become a regular one. But the heat of financial distress pushing the middle income families to take such drastic steps is a recent phenomenon, at least in India.
This brings to light the ignorance of 'personal financial planning' among most of the middle class families. During the last decade or so the spurt in new-age technology related jobs, where the average salary of an individual was far above the other sectors, created a new section of middle class people. When a young boy or a girl, in early twenties, is offered a fat salary, they tend to forget the importance of 'financial prudence' and indulge in acquiring assets like luxury apartments, high-end vehicles and develop a life style that demands lot of cash. Most of these assets are acquired by taking loans against the fat salary. As long as the salary keeps flowing in, the pinch of EMIs is not know. But what they fail to realise is that these EMIs are here to stay, even if the salary moves downwards or even stops for a couple of months. Debt is like a knife with sharpness on both sides. When the fruit that is being cut is ripe and soft (read, good flow of income), it cuts the fruit easily; but when the fruit is hard (read, fall in income), it cuts your finger. This is where the importance of financial planning lies. The most important aspects of financial planning are:
(a) Investment planning
(b) Tax planning
(c) Risk Management & Insurance planning
(d) Retirement planning
(e) Estate planning
Today, there is no dearth for literature on financial planning. There are many books, websites and even agencies offering this wisdom. But what is more important is to take the advise from them and use one's own wisdom to plan the finances properly. A step-by-step approach to financial planning is given below, which is taken from the book, 'Personal Finance' by Jack R Kapoor, Les R Dlabay and Robert J Hughes.
In the first look, this might appear cumbersome, but it is not so. And moreover, it is not necessary that an individual goes through each step. What is expected is that each individual is at least aware of these aspects and spends some quality time planning his/her finances. This would make him/her better prepared to face financial adversities in future; and thus reduce the pain.
This brings to light the ignorance of 'personal financial planning' among most of the middle class families. During the last decade or so the spurt in new-age technology related jobs, where the average salary of an individual was far above the other sectors, created a new section of middle class people. When a young boy or a girl, in early twenties, is offered a fat salary, they tend to forget the importance of 'financial prudence' and indulge in acquiring assets like luxury apartments, high-end vehicles and develop a life style that demands lot of cash. Most of these assets are acquired by taking loans against the fat salary. As long as the salary keeps flowing in, the pinch of EMIs is not know. But what they fail to realise is that these EMIs are here to stay, even if the salary moves downwards or even stops for a couple of months. Debt is like a knife with sharpness on both sides. When the fruit that is being cut is ripe and soft (read, good flow of income), it cuts the fruit easily; but when the fruit is hard (read, fall in income), it cuts your finger. This is where the importance of financial planning lies. The most important aspects of financial planning are:
(a) Investment planning
(b) Tax planning
(c) Risk Management & Insurance planning
(d) Retirement planning
(e) Estate planning
Today, there is no dearth for literature on financial planning. There are many books, websites and even agencies offering this wisdom. But what is more important is to take the advise from them and use one's own wisdom to plan the finances properly. A step-by-step approach to financial planning is given below, which is taken from the book, 'Personal Finance' by Jack R Kapoor, Les R Dlabay and Robert J Hughes.
In the first look, this might appear cumbersome, but it is not so. And moreover, it is not necessary that an individual goes through each step. What is expected is that each individual is at least aware of these aspects and spends some quality time planning his/her finances. This would make him/her better prepared to face financial adversities in future; and thus reduce the pain.
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