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It may be expected from the blogs at this place, regardless of the topic, that it’ll revolve around the financial aspect of life. But when it comes to the growth of kids, and their financial security, with sufficient experience and observation, you will figure that no matter how strongly you secure your kids’ future financial position, stability and growth only happens by developing requisite skills and understanding of the world around.

Therefore, I’ll start with essential financial measures you must take as a parent to ensure a safe financial journey for your kids, but will extend the text to include ways to ensure that your kid’s future is secure even without your money. First we start with the steps to provide for the minimum required financial security to your kids and any other dependents:

1. Life Insurance
Life insurance is the most basic of the tools, to start with once you have any dependent. Since for first 20 – 25 years of life your kids are going to be financially dependent on you, it is important that this dependency is safeguarded and provided for even if you are not there to provide for it. Your next question may be about how much is needed, so there is a detailed analysis of future requirements that can be done by your wealth manager/ financial planner.

In case you are yet to consult an advisor, and want some cover immediately, you may go for a term cover of 10 times of your annual income; i.e. if your income is Rs. 10,00,000 p.a. your life cover will be of Rs. 1 cr. for which annual premium can range from Rs. 9,600 to Rs. 15,000 depending on the insurer services.

2. Health/ Disability/ Critical Illness (C.I.) Insurance
Health insurance or disability insurance is more important than life insurance for you, as one must have a health insurance even if he/she does not have any dependents. Main reason being, disability or bad health may curtail your earning capacity and badly damage your long term financial scopes by digging into your existing savings.

When you have kids to look after as well, their health also becomes an important factor. Starting FY 2014-15 you can also get a deduction of Rs. 5000 on preventive health care expenses, but given the rising cost of medical expenses that may not be enough. The way out is to look for a health insurance policy that gives you both hospitalization cover and reimbursement for health checkup expenses.

A reasonable amount for individual health policy given the future level of costs is Rs. 500,000, but again if you can afford you may go for higher Sum Assured (S.A.). For Critical Illness, expenses may be even higher and thus usually at least 4 times of S.A. is recommended for C.I. policies of that of health cover. E.g. if you have a health cover of Rs. 5 Lakh you can go for a Rs. 20 Lakh C.I. cover.

3. Emergency Fund
Emergency Fund is that money, which fills the gap between insured costs and regular expenses, for example job loss, or any other financial emergency, not covered by any insurance policy. Also sometimes you may have to bear some amount of expenses out of your pocket before you can get the insurer to cover the costs. Emergency fund comes in handy in such situations.

Most of the money for emergency fund is kept in fairly liquid investments like, Super Saver accounts, easily accessible fixed deposits or Money Market Funds. The amount of emergency fund depends on your monthly expenses. Though, it’s better to let a qualified financial advisor give you this estimate after a thorough study, in general you may follow the rule of 4 – 6 months of expenses as emergency fund.

Another major benefit of emergency fund is that even when your financial situation becomes tight, your long term financial goals will not be harmed by sudden and temporary setback.

4. Regular Goal Based Saving
After you have completed the contingency planning, time is to pack your bags and start moving towards the long term goals with peace of mind. Again it’s recommended that you take assistance of an advisor to plan your goals thoroughly, but just in case you are not, this is how you go about them:

Step 1: Write all your goals.
Step 2: Put them in a priority order
Step 3: Estimate current cost of these goals
Step 4: Multiply this cost by the multiplier given in the table below, depending on the number of years to the goal:

So, for example, current total cost of your kid’s marriage can be Rs. 10,00,000, but his/her marriage is due in about 20 years from now, therefore approximate cost of it will be around Rs. 35 Lakh (10,00,000 x 3.5). Though, remember that this table only provides an approximation actual expenses may vary widely if there is high inflation.

Step 5: Determine the monthly saving required for the goal by dividing the future cost calculated above with the number of months available to that goal.

E.g. in the above example: Marriage expense comes out to be Rs. 35 Lakh, but it is 20 years or 240 (20 x 12) months away. Thus, if you save Rs. 35,00,000 ÷ 240 = Rs. 14,583 per month, you can achieve this goal.

Again, however, this kind of calculation does not provide for interest earned on saving so you may simply reduce the monthly investment amount to some extent.

Step 6: Start investing in the following manner:

Important Things to do Other Than Investment and Insurance
Now that, you have financially prepared yourself to tackle almost every need of your kid, you need to think ahead and prepare your child for the challenges of the future. Following steps can be taken to allow kids to develop their skills and understanding:

1. Confidence Building in Kids
You may have seen that, confidence in people define their financial success. Confidence itself on the other hand comes from certain external and internal factors, such as beliefs, values and small successes. The internal level of confidence may exist in kids but it also requires nurturing and external support to grow and become strong. This can be done by two very small acts:

1. Freedom to experiment: Teach kids how to handle failures, and learn from their mistakes, rectify them and try again.
2. Measure success: Success if measured simply in mind can be overrated or underrated, generating unreasonable emotional exhilaration or anxiety. Both are dangerous for long term success and confidence. Thus, teaching kids about measuring their successes on practical parameters is a good way to build their internal confidence and self-belief.

5. Help them identify issues and overcome obstacles in life In today’s world no one can claim to know everything or have seen everything, but we can always try to know what went wrong or what is being a roadblock in our success. With your experience of handling some of the issues you faced in your life you can help your kid to develop that intelligence and wisdom to look ahead and tackle small and big obstacles in their lives. Important thing is to develop that methodical thinking which divulges and explores the details rather than simply skimming the surface and getting emotionally bogged down by the issues.

The richest people in the world look for and build networks; everyone else looks for work. - Robert Kiyosaki

6. Making them financially literate
Financial awareness is another important aspect of life, you can look at it in the way that when you had been a kid only formula for money was to keep your expenses as low as possible and save money. But with time saving alone is not enough, knowing true nature of money and how it can be multiplied is also required. Moreover, this step sets up the right expectation in your kids’ mind about money.

7. Giving them exposure to face the world
Since, world is made up of lots and lots of people, it is important to know as many people as possible and know how to deal with them, in short ‘how the world works?’ Motivating your kids to participate in community projects, speak up their minds on issues even if they are among quite senior and serious people, will give them confidence and courage to hold their point and participate on the stage, rather than just sit among the audience and clap.

8. Helping Kids to work on their dreams
Finally, with all the internal qualities and confidence, the last straw that makes any one successful is his/her vision for life. Kids, you will find are good at developing and harboring their own very unique vision of their world, need is to help them shape it so that they can go out and live those dreams and be successful in the way they want to be successful. After all, each individual has a different definition of success, but the result for each is almost the same level of gratification and prosperity.

1. An Emotional Guide: In investing, emotions play the devil's role. If left unchecked, they can easily ruin one's entire financial life. Hence, there is so much talk of taking emotions out of financial decision making. A financial advisor does just that by playing the role of an emotional anchor in your financial journey. He will help you stick to your goals and financial plans, irrespective of whether markets are riding waves or are in dire straits. He/she will help in managing your emotions of greed, hope and fear in different market times. These are aspects most important when we consider a life-time of investments.

2. Helps you in Understanding Self: You often don't know what you don't know. A true financial advisor attempts to draw a full picture of you in financial terms. He aspires to see not only the present but also the future. Perhaps, he knows more about you than you know about yourself, if you have been honest with him. It is with the help of a financial advisor that you can dissect your financial life to minute details and plan for every small and big financial goal. He will be able to help you find and fill your weaknesses and build on your strengths as you progress in your life. He will even warn you of dangers and risks which you do not see. While undergoing a proper financial planning, the advisor will also help you spell out your financial goals and priorities them as per your needs and risk profile. The entire process and experience can unravel new things for you.

3. Ensures Continuity in your Plans: It is one thing to make a plan and another to stick to it. Paul Samuelson once said, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” However, it is not easy as short term, immediate concerns often overshadow our long term commitments. A financial adviser is one who can help you maintain continuity in investing. More than anything else, it is the time in market rather than superior products or market timing that dictates returns in the long run. The financial advisor helps you to be patient and reap the full benefits of time and continuity in investments.

4. Source of Experience & Knowledge: A financial advisor often carries with him knowledge and wisdom that he has gained from being in the industry full time, for many years and his constant learning in the business. Financial services is an industry that requires regular studies and being updated of all new developments, be it regulations, market situations or product features. As individual investors, this may be too much & may come at the cost of your time, energy and money. Knowledge and wisdom is difficult to gather and should not be mistaken for information, which is readily available. Whenever you are lost or are facing any doubts or need any help in a financial decision, your financial advisor will be there for you.

5. Motivation to Excel: No one dives into a swimming pool eagerly for the first time, often it is either an instructor or a friend or a parent behind you who pushes you. Like any parent or teacher, a financial advisor has one hidden desire from each of his clients. He wants them to outgrow themselves and become bigger and better investors, in all aspects. Driven by this desire, a financial advisor would push you to do things you may not be fully prepared with. Whether it is controlling spending, forcing you to avoid unverified investments out of greed, making you save for your goals or forcing you to invest more, behind every decision is the desire for your long term well-being. Perhaps, most of the investors would not be even half of their portfolio worth today, had it not been for their financial advisors. He sets newer, higher goals and aspirations for you which you never thought were possible. The constant nagging, motivation, control and aspirational attitude bridges the gap between what you already are and what you can possibly be.

6. Life long Partner: A financial advisor sees you not just a single transaction driven customer, but as a potential, life long partner in your financial journey. The long term relationship is something that he values and expects from every good investor. For him you are never an individual, but a family that can extend into different generations. Hence, it is important for you to have a trust worthy financial advisor. This is a journey where he will be there in all ups and downs in your personal life (and markets) and will help you avoid and face various challenges in life. As the ultimate aim is financial well-being, a financial advisor will seek not only grow but also protect your wealth, always keeping the bigger picture in mind. As a mutually beneficial relationship, the financial advisor sees his well-being only conditional upon your well-being, to its fullest extent.

7. The obvious reasons: Well, the obvious reasons for which you think a financial advisor is required, actually comes last in our list. Reasons like operational support, saving time, consolidation of entire investment portfolio, keeping regular track of investments, regular portfolio review, timely communication of portfolio and transaction information, resolving any queries or issues in investments, keeping abreast with regulatory requirements, etc., are the many additional reasons why a financial advisor is needed. He helps you do all this which in turn helps you save a lot of time, hassles, efforts and worries. With the advent of technology and digital processes, a financial advisor uses them as his tools as a master, keeping control and managing them smartly to bring greater convenience for clients.

Conclusion
A financial advisor is more than the sum of all investment decisions that he can help you make in your life-time. How about starting with a simple question – Can you add the value of all decisions that you have 'not' taken because of your advisor? Can you value the portfolio he suggested against a portfolio you would have created in his absence? How about valuing the time you have remained invested or the additional investments you made, courtesy your advisor? The fact is, it is easier to think about making isolated investment decisions but difficult to imagine and create the bigger picture and keeping it relevant for years and years. A financial advisor not only helps you in deciding, but also helps you in deciding what to decide. Simply being with you, assuring you and helping you as you may 'need' and a promise for a life-time of same, goes a very long way in you being confident in your investment journey today. This new year, it is time to put a word of heartfelt thanks out to your financial advisor too in response to his new year wishes for your well-being.

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HOW TO DO TAX PLANNING?

For proper tax planning exercise, it is always recommended that you approach your tax or financial advisor asap and sit with him for the same. Experienced persons who have done this many times would find tax planning easier. Even then, there is no harm in consulting your advisor for the same. For those intending to brush up their knowledge, you can always look out for tax planning related articles and list of avenues to save taxes. The following three step process is generally understood to be a universal tax planning process. Please note that this is a simplistic approach for individual clients which essentially covers the important aspects of tax planning.

1. Calculate Your Taxable Income: The tax is levied on your taxable income, so the first step is to ascertain how much your taxable income will be for the year. There are different heads of income and income in each of it is calculated and treated differently, so it is not going to be very simple. As the first step, you need to sit down and calculate your income from all these heads to arrive at your taxable income. There is no need to arrive at a perfect figure at this moment as this exercise is only to approximately arrive at the taxable income to know the extent of the tax savings you need to do.

2. Calculate spendings & savings eligible for tax breaks: During the year you may have, knowingly or unknowingly, done some expenses and investments which qualify for tax breaks. The most common sections to look for are 80C/80CCC/80CCD (for eligible investments), 80D (medical insurance premium), Section 24 (home loan interest) and 80G (donations). These are just examples and there could be many other sections applicable to you. An important thing to remember is that your spending /savings must have been done by you and the necessary supporting documents or proofs for the same is available with you. The idea here is to calculate the limits provided by IT rules which you have already exhausted under different sections and the balance still available for you to make use of.

3. Planning For Tax Savings: After knowing your taxable income, how much you will need to save and the avenues still available for you to exploit, the final step is to decide what further needs to be done to

save taxes. Frankly, it is your decision and many, at the lower end of tax liabilities, may choose to pay nominal taxes. But if you intend to save as much as you can in taxes, then you will need to plan making further investments. Explore all available avenues and plan your investments as per your preferences.

WHAT NOT TO DO?

In tax planning it is also important to not do few things which will defeat or dilute the whole exercise of tax planning. Any financial decision we make may have huge financial repercussions. Your decisions should be well-thought of, well researched and should be done carefully with patience. Here are few things which you should not be doing...

1. Postpone tax planning decisions further: We have been saving it for long. Tax planning is not a year-end exercise but a year beginning exercise. But if you are late or if you feel there is more scope to save taxes, your available time window is still open, but only for a few weeks. Remember, that tax planning, consultations have to be done now so that you have time to execute your decisions well in advance before 31st March.

2. Focus only on Tax Savings: In India, tax planning in itself is considered as a stand alone financial objective and activity by many. Frankly, nothing can be farther from truth. No investment or expenses should be done purely for the purpose of tax savings. Tax saving can be an additional incentive and objective for another primary objective or need which you should look to fulfill. Think about it, it can be better health protection, social service and so on or simply wealth creation.

3. Buy insurance for tax saving purposes: The idea here is already covered in point above but frankly it needs special mention as most insurance products are sold in these last couple of months purely in the name of tax savings. Please note that insurance is a good avenue and everyone should buy proper insurance policies but they should be driven by your insurance need. If the insurance policy fits the bill for proper insurance coverage which you 'actually need', then only think of buying that policy as you never know when you may need that coverage. Buying insurance, which is like long-term contract with low returns, for tax savings is not a good idea and there are better products for that purpose.

4. Investing more than needed: You can always go overboard after exhausting your limits available for tax planning and there is no downside in doing it. The idea behind this point is that do not make the mistake of a forced financial decision just to save taxes when you don't actually need it. Since the tax saving avenues come with certain restrictions and/or limitations, it is better that we do not go overboard with them. Exceeding your tax saving limits is welcome when those financial decisions are driven by your financial objectives and other needs and not by tax savings.

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1. There is not just one finish line, there are multiple goals to be achieved during a lifetime, and you'll be simultaneously running for all of them.

And 2. The life goals, unlike the finish line, they aren't constant, as you move towards them they'll drift a little further, not necessary in the north.

So, resting on the above attributes, we arrive at: Goal Setting is not a once in a lifetime process. It is an ongoing affair, you need to revisit and review them time and again.

Having said this, why aren't our goals fixed? why do we need to revisit them repeatedly?, often comes into the investor's mind. So the following paragraphs will explain the reasoning behind the constant motion in your goals.

Firstly, your lifestyle exercises a significant impact on your goals. Let's assume, you are working in a junior management grade in a company, and you feel Rs 1 crore will be enough to meet your lifestyle needs post your retirement, and you invest accordingly. After some time, you get promoted to a middle management grade, so now with an increase in your income your lifestyle will also upgrade, and to maintain this upgraded lifestyle after your retirement, Rs 1 crore may not suffice. This concept is not just applicable to an increase in your daily living expenses, it is also applicable to the size of your other dreams, they will also move in conjunction with your income. The dream of owning a basic hatchback will transform into a dream of owning a comforting sedan, the dream of a Kashmir vacation will translate to a Dubai vacation, and the like.

Secondly, there can be a change in your footing which may require you to modify your goals. There may be goals which were paramount for you earlier, but now they've lost their meaning, so they need to be put off the table. For example, five years ago, your sole aim in life was to own a Harley Davidson and you were passionately saving for actualizing your dream. But recently you had to undergo a major knee replacement surgery, and you have to take the back seat now. So, the goal has lost its significance. Conversely, a variation in your position may require you to elevate or alter your goals too. Let's say you wanted to stay ahead in the race and you started planning for your kid's education while your wife was pregnant, but things didn't move as planned, and she delivered twins, so now you need to account for the second kid too while planning for the kids' education.

Thirdly, Inflation is the villain which pushes your goals away, away from your reach. It is because of inflation, that you have to run faster and sweat extra to reach your target. In our previous example, Rs 1 crore was enough for the investor to enable him meet his post retirement needs “today”, but not 10 years ahead when his retirement approaches. Assuming an average rate of inflation of 6%, his retirement corpus requirement to maintain his “present standard of living” will be Rs 1.8 crores after 10 years.

The fluctuations in our life goals are a product of the above factors. These changes are inevitable, and hence we need to keep on incorporating these changes into our goals and make the necessary modifications in our financial plan. If you do not keep revisiting and modifying your goals, you would be moving in a random direction which may or may not be leading you towards your targets.

To conclude, this marathon called life is really long, the number of laps are endless, the targets are many and are constantly evolving. So if you want to win the race, you have to be fast, run at a speed higher than the speed of the goals, you have to be flexible, align your direction with the direction of the targets, and you need to be attentive to the change throughout the run.

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