4/16/2015

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A Financial Plan That Works For Everyone

by Sanjiv Singhal

32 Comments

Must Read, Personal Finance

To get anywhere, you need a plan and the same goes for your financial future.
Unfortunately. a financial plan appears, to most of us, like a visit to the dentist
something to postpone until you wake up screaming in the middle of the night.
So we came up with a financial plan thats more like a visit to your favourite coffee
shop. It involves forming simple habits and takes less than an hour to start
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implementing.
Investing, tax planning
1. Maximise your Employee Provident Fund (EPF) contribution. If your total contribution
(including your employers) to EPF is less than Rs 1.5 lakh, investthe difference in Tax
Saving (ELSS) funds. Your tax planning is done.
2. Invest 30% of your take home salary in diversified equity mutual funds. Never invest
directly in stocks. Schedule a SIP to automate this habit.
3. Got your annual bonus? Invest 50% of it in a 5 year auto-renewing bank FD. This is
your emergency fund.
4. Invest the remaining bonus in yourself take a course, travel, do fun stuff.
5. If you have a home loan, split the bonus 3 ways one third to prepay the loan.

Insurance
1. If you have people who depend on your income, then buy a 40 year term life
insurance plan at 25, then a 30 year plan at 35 and a 20 year plan at 45. Every time
make sure the total sum insured is 30x your then salary. There is no need to buy a
life insurance policy unlessyou have dependents.
2. Buy health insurance for every member of your family. Even if youre covered by your
employer.
3. Buy insurance for your car, your house and its contents.
4. Renew your insurance every year 1 month in advance.

Please note that I said buy not invest. Insurance is not an investment.
Loans
1. Only ever take a loan to buy a home. Never more than 75% and never longer than 15
years. Pay it off within 7 years. Yes, its possible.

Bonus tips
1. Maintain a single no frills bank account and a single no frills credit card.
2. Set all your bills (electricity, phone etc) to auto-debit to your credit card every month.
3. Pay off your credit card every month in full. Set it to auto-debit your bank account
every month.
4. Contribute to charity your time is better but some money will do as well.

Congratulations! Youve just set yourself up for a comfortable financial future.

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(This plan assumes you start earning at 25 and retire at 60. Other planning
assumptions are based on whats the norm in India. This plan does not cover a
transition to retirement and is most suitable for people below 50)
(This post was updated to reflect the changed tax rules in 2014)
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AboutSanjivSinghal
CEO of scripbox, Sanjiv has worked at the intersection of finance & technology for
over 22 years. Having held leadership positions with Citibank, ABN AMRO Bank &
Kotak Mahindra, Sanjiv set up scripbox along with his friends Atul & Ravi with the aim of
simplifying personal finance for everyone. You can also follow Sanjiv on twitter @sanjivsinghal

32Comments
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Jointhediscussion
VK 2yearsago

Conciseandactionable,nice.Canyouelaborateonthebelow:
MaximiseyourEmployeeProvidentFund(EPF)contribution.Ifyourtotalcontribution(includingyour
employers)toEPFislessthan1lakh,savethedifferenceinaPublicProvidentFund(PPF)account.
Yourtaxplanningisdoneandsoisyourallocationtodebt
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