Moneycontrol
Jan 28, 2014 04:32 PM IST | Source: Moneycontrol.com

Financial planning critical for salaried person

The reason for this is the limited and fixed resources for generating a flow of income. Not only that the resources are limited, the major share of contribution comes from the salary.


Jayant Nair
MSVentures Financial Planners


Planning for finances is an indispensable activity for businessmen, student, self employed, professional etc. However planning becomes all the more critical for a salaried person. The reason for this is the limited and fixed resources for generating a flow of income. Not only that the resources are limited, the major share of contribution comes from the salary.


The need for financial independence is a commonality across most of the salaried class people. One has to be pro active in taking steps towards this financial independence. It is important to understand the spending and saving patterns. One has to fill the gaps by spending frugally for the purpose of consumption and saving more for a productive activity - income generating activity. Being productive alone is not sufficient, it is critical to be more efficient and effective moneywise. This will inch you closer to financial independence!


The biggest advantage of a salaried person is that there is a regularity in the flow of income in the family. This characteristic can be used as a tool for systematic investments for achievement of financial milestones. Another benefit for a large number of salaried class is risk coverage provided by employer such as life insurance and health insurance. However it is advisable that one has his own personal insurance covers rather than relying only on risk covers provided by employer as the contract of risk cover would cease when the employment contract comes to an end.


While considering saving of taxes, it is important to analyze first whether paying of taxes is a better option rather than taking a home loan only because one gets tax deduction on principal as well as interest component of monthly EMI. It is quite possible that the interest amount incurred is huge vis-a-vis the tax savings thereby making it a losing proposition. It is better to pay the tax rather than purchasing a home on loan solely for saving taxes. Tax saving should be incidental to the achievement of financial goals and not vice versa. Taxes need to be planned well in advance right in the beginning of the financial year and not when the deadline is nearing thereby ending up investing money in a wrong product.


In short, first save for the financial goals and then spend wisely for your needs. Time needs to be taken out for putting finances in places because at the end of the day, if our hard earned money does not work hard for us, the whole purpose of earning gets defeated.


One must take charge of his or her finances to ensure financial stability and independence. Lastly, take professional advice - entrust the task managing finances to a financial planner so that you can focus in your core area/career.

The author is the chief financial planner at MSVentures Financial Planners.

Sections
Follow us on
Available On