Here are the 5 aspects of a complete financial picture:

Savings: You need to keep money aside as savings to cover any sudden financial need.

Investing: Investing is important to grow money so that you can achieve what you aspire.

Financial protection: Now, financial protection through insurance ensures you and your family are able
to sail through during the hard times.

Tax planning: With proper tax planning, i.e. making adequate expenditure/investment, you can bring
down your taxable income, eventually saving a lot of money every year.

Retirement planning: Finally, retirement planning is crucial to ensure that you have a big bank balance
meant solely for your needs during the twilight years.

1: Saving

The need for sudden money can come anytime. It can be as mundane as a car breakdown or as serious
as losing your job. However, such emergency events can be dealt with if we have enough savings to
cover the need. As a thumb rule, the fund for your emergency needs should be three to six month of
your expenses. Debt instruments like Liquid Funds are excellent options for parking the money meant
for emergency needs. And the 3 reasons to back that thought:

First, liquid funds give slightly better returns than your savings account, even though there is no
guaranteed return.

Second, these funds are highly liquid, hence you can withdraw the money after seven days.

Third, they carry negligible credit and interest risk, and hence your money is safe.

2: Investing

We often confuse investing with saving, or consider them to be synonymous. While saving is about
setting money aside, investing is putting money/purchasing assets like – stock, bond, mutual funds etc. –
in order to make your money grow. Now talking in terms of investment, mutual funds are an excellent
investment option if it is done right. However, while investing in mutual funds it is essential to be
mindful about choosing the right fund for your investment, otherwise it might turn counterproductive.
Hence it is essential to make your investment as per your investment requirement and horizon. So here
the thumb rule is, turn your dreams into financial goals and set a timeframe around it. Then pick a
mutual fund that matches your investment timeframe. Now what funds should one pick as per their
financial goals?

Short term goals: The goals that need to be achieved within three years are short term goals. From
saving for a trip to saving for a phone, there are multiple things for which one needs to arrange funds
within this timeframe.

Best investment options: Liquid Funds, Ultra short-term funds.

Mid-term goals: If you have set a goal for yourself that needs to be achieved within three to five years,
for example down payment for a house, it can be termed as mid-term goals.

Best investment options: Hybrid Funds, ELSS, Short Term Debt funds like Banking and PSU Debt Funds

Long term goals: Milestone events like retirement, children education, their marriage, i.e. the goals for
which the timeframe is minimum of 5 years are termed as long term goals.

3: Financial protection

We might weave several dreams in life and create investment plans to turn those dreams into reality.
But unless we protect them with a safety net, the same can turn into a liability. That safety net is
insurance. There are 4 kinds of insurance we all need. And these are:

Term insurance:

It is a kind of life insurance that ensures that your family or dependents do not have to go through
financial hardship if you die early. As compared to other health insurance products, the sum assured for
term insurance is higher as against the premium amount. Now if you calculate it correctly, then you can
account for day-to-day expenses of your family, a retirement corpus for your spouse, cover for your
liabilities like – home loan, and children’s education in the sum assured.

Health insurance and Critical Illness insurance:

Having health insurance ensures that you do not have to pay from your pocket in case you or any of
your family members have taken ill. Health insurance covers all costs for treatment of the insured like
hospitalization, medication, pre and post hospitalization expenses etc. Meanwhile you can opt for
critical insurance along with your basic health policy. In case you are diagnosed with one of the critical
illnesses mentioned in your policy, the insurance company will pay you the sum assured.

Mortgage Protection insurance:

Mortgage protection insurance pays off your mortgage if you die during the term of the mortgage. It
ensures the loan or mortgage for home, car, property etc. does not become a liability for your family, in
case you die early.

Personal Accidental insurance:

In case you meet with an accident and get seriously injured, or become partially or fully injured, the
insurance company will pay the sum assured to cover the expenses for treatment and also loss of
income. Meanwhile, if you die during the accident, the lumpsum amount will be paid to your family. The
payable amount, however, is dependent on the fatality of the accident.

4: Tax Saving

Though we are required to pay taxes as per tax slabs, with the right kind of investment/purchase we can
reduce our taxable income to a certain extent. In fact, there are as many as 70 exemptions and
deduction options through which we can bring down our taxable income.

5: Retirement planning:
Retirement is one of the most crucial life stages, and it can be as blissful or as miserable depending upon
how you have planned for it. It holds true for financial planning too. Now, planning finances for
retirement is a two-step process. First, is saving for retirement and second is, generating income from
your assets during retirement and, here are the two steps

1: Building a retirement corpus:

Saving for retirement is crucial for two reasons majorly – loss of income and increased life expectancy.
Let’s assume that you retire at 60 and live up to 85. How do you plan to fund your expenses for 25 years
after retirement, at a time when you do not have any steady income? Plus, considering inflation, i.e. the
rise in prices of goods and services for regular use, your expenses will be much higher after retirement
than it is today. For example, if your monthly expenses are Rs 35,000 right now, it would be Rs 80,000
per month in 20 years, considering you would want to maintain similar living standards.

2: Generating income during retirement:

As much as it is important to ensure that you are saving enough for your retirment while you are
working, it is equally important that you channel that corpus correctly after retirement. Making the right
investments will ensure that you have a steady income as long as you live.