Financial Planning Part 1: Expert Tips To Save Money

In the first part of this 4-part series on financial planning, we share expert financial advice and tips to save money from the best personal finance management advisors.

Money! We all need it and want more of it. At SHEROES, facilitating financial independence for women is very important to us.

We believe that women should be financially independent, so on the SHEROES app, we provide expert financial advice and financial guidance with the aim of building female financial independence in India.

We got women and financial planning experts - like Mrin Agarwal, Dipika Jaikishan, Shwetha Bharathwaj and Shipra Baranwal - together to discuss personal financial planning and finance management topics in the Mahila Money community.

These sessions helped SHEROES app users get free financial planning advice on their personal money management issues, like saving and investment tips, and advice for managing debt wisely.

As Mrin Agarwal, Founder of FinsafeIndia, Co-founder of Womantra and a licensed financial advisor, financial coach, and personal finance columnist, says:

“It is important for women to generate income and ensure they invest this for their future. Further, it is important to be involved in money management and for this they need to talk about investments with their spouse.”

SHEROES Champion, Dipika Jaikishan, is on a mission to make every woman in India financially independent, says:

“Money is an enabler of most things in our lives, says Dipika Without money, all our life goals would just remain dreams. This is why I've dedicated my life to helping people figure out how to be financially sound and financially healthy.

Women specifically, tend to leave their money decisions to other people: usually a spouse, or a parent. However, women live longer than men, have higher healthcare costs and have non-traditional career paths, hence their financial paths and money situations are quite different from those of men.

What I've loved about working with women on their finances is that they care about the long term, and don't invest in things they don't understand.”

Shwetha Bharathwaj, is the Founder & CEO of HerAlpha and an SEBI-Registered Investment Adviser with over 13 yrs of experience in the BFSI.

Shipra Baranwal, is Co-founder of LiveFromALounge and also runs the PointsPurse community where she runs personal finance and credit card workshops exclusively for women.

What Is Financial Planning?

Financial planning is the process of creating a financial plan to guide your financial decisions and help you meet your life goals.

Financial and investment planning gives you financial control of your income, expenses, and investments and helps you manage your money wisely so you can plan for the future.

Sometimes referred to as an investment plan, a financial plan can focus on other specific areas of personal finance such as risk management, estates, college, or retirement.

To help you learn how to make a financial plan for your goals and manage your money better, here’s a roundup of the best financial advice from our experts on basic financial planning for beginners.

Expert Tips To Save Money

This list of tips to save money includes some of the best money saving ideas, and brilliant ways to save money and invest it wisely. Create a money saving plan with these money saving tips from our personal financial advisors on SHEROES.

1. Start small and increase your savings slowly

Make a financial budget and follow it. Keep an expense tracker to keep track of your expenses. On analysis of your financial expense tracker, you’ll get an idea where you spend the most on non-essential expenses.

If you have personal debt or personal loans to pay off, it is always better to pay off the both the loan and interest. If you’re short of funds, it’s better to pay off the interest first and then pay the loan later when you have the funds. As Dipika says:

If you’re just starting to earn, start by saving just ONE day's worth of your income. Slowly increase that to 10%, then 20% and finally 30%. I.e., if you are earning let's say 60,000 a month, you should be saving 18,000.

Let's assume I want to take a holiday after 24 months and need 2 Lakhs for it, I want to know how much I need to start investing now. I also need to consider inflation, which means what is worth 2 lakhs today will be 2.26 lakhs after 24 months.

This means it has gotten more expensive by ₹26,000. I want to take a conservative risk so I will need to invest ₹9,000 every month. This can be applied for any goals – education, travel, retirement, emergency fund etc.

She also offers the tips below to start saving money:

• Save before your spend. Put away your savings as soon as you receive your income.
• Start by saving 1 day worth of income, and slowly work up to 20% of your income.
• Start with SIPs so your savings get invested automatically in the beginning of every month.

2. Is the 50-30-20 rule the best saving plan?

What is the 50-30-20 rule and does it really help in saving money monthly? The 50-30-20 rule of budgeting is one of the methods of saving money that recommends splitting up your monthly income as follows:

• 20% of your income for savings
• 50% of your income for important and necessary expenses
• 30% of your income for important but optional expenses

 “Start by empowering yourself with knowledge, says Dipika. Without knowing the basics, investing can be overwhelming.” She offers 3 steps you should follow for investing every month:

• Keep aside 10 to 20% of your salary as soon as you receive it, so within the first week of every month. Work this up to 30%.
• Create an SIP (or multiple SIPs!) for those savings so you are ensuring the money is growing.
• Continue this discipline month on month.

For personal financial advisor, Mrin Agarwal following a 30-30-40 rule, with 40% kept aside for savings and investment is the best saving plan. "It works provided you follow it in a disciplined manner,” she says.

Goal-Based Financial Planning For Women

Personal investment planning involves using your investments to meet your financial goals and objectives. To invest money, you need to first create a financial plan so that you know how much to save for your goals.

Then based on your risk tolerance, choose the right instruments for your financial investment planning needs. Risk tolerance is different for everyone and is defined as the percentage of money which is at a capital risk and based on the amount of money you can comfortably lose.

Goal-based financial planning in your 20s is very different from financial planning in your 30s or financial planning for senior citizens because your financial goals will be different.

In your 20s you may not be married and won’t have to create a financial plan that includes your spouse and kids, while in your 30s and 40s you will have to include them in your plans.

The safest investment options are the guaranteed return options backed by Govt of India like Employee Provident Fund (EPF), Public Provident Fund (PPF), Post Office schemes etc.

Fixed Deposits (FDs) are also pretty safe if the bank is chosen carefully. FD's are different for different banks. The interest rates offered also differ from bank to bank.

Check the financial health of the bank before you park your money. The NPS of the bank should not be more than 10% and capital adequacy ratio should be more than 12%. You can get these values by searching on Google.

For long term goals (10 to 15 years) you could invest in Equity mutual funds, PPF, NPS. For short term goals (3 to 5 years), you could look at investing in a short term debt fund or Fixed Deposits.

1. Financial planning for salaried employees & strategies for tax savings

According to our experts, the best financial planning for salaried employees would be to invest 40% of your salary and, based on your risk taking ability, put that in mutual funds and PPFs.

A moderate-risk investor could look at a combination of Public Provident Fund (PPF), equity mutual funds (multi-cap funds) for long-term and short-term debt mutual funds or FD’s (for short term).

Good tax planning can help you save a lot of money. As Mrin says, “It is important to know about tax planning. In case you’re working, your Employee Provident Fund (EPF) would make up for your tax saving under Sec 80C. and help you get deductions of up to ₹1.5 lakhs in a financial year.”

Aggressive investors can invest in ELSS mutual funds and avail the dual benefit of tax saving and growth. You can invest up to ₹1.5 lakhs and get a deduction under Sec 80C in old tax regime.

Other Sec 80C investment options include EPF, VPF, PPF. Also, repayment of the principal amount towards your home loan qualifies for deductions under Sec 80C.

You can use the calculator on the income tax website to calculate your taxes approximately and also help you choose whether you should opt for old or new tax regime for Income Tax Filing.

Start your tax savings at the beginning of the financial year as you get interest on those extra months. Stay away from insurance products that promise you growth on your money. Those are commission-based investments and over the long term, the returns are also very low.

There are options like 5 year FDs and NSCs. However, if you know you are willing to keep aside your money for 5 years you can invest in a Tax saving mutual fund called ELSS. These funds have the shortest lock-in period of 3 years within the tax-saving investments category. They also give you good growth in your money over a period of time.

So should you invest in PPF or ELSS funds to save tax? You can consider a combination of the two. “I personally do both but I do a much larger amount for tax savings in ELSS as I am more keen on high growth in the long term,” says Dipika.

She also offers the tax-saving tips below for comparison:

• PPF is a long-term investment and your money is locked for 15 years. It is currently at 7.9% interest annually and this is changed by the government every quarter.
• ELSS is an equity mutual fund with a 3-year lock-in and higher chances to grow. Of course, there will be some volatility in the market that you need to be comfortable with.

2. How to save money for your child's education

Most children's education plans seem to be for a college fund. But school fees are also high these days. How to invest for both of these? That is a great question.

I hear school fees are really high these days and it is at times hard to manage this. Let's take for example you need to pay for next year's fee in April 2020 and the amount is ₹80,000 per year.

You’ll need to start saving ₹12,000 per month approx starting now to get to that number. I think it is important to break down school fees year on year and see how much you need to save every month or what lump-sum amounts you need to get to that number.

School fees also get more expensive by over 10% every month and it is important to keep up with that inflation. Regarding financially planning for kids, I would treat it as any other financial goal, perhaps a set of multiple financial goals.

Calculate the amount you need for education, living expenses and others expenses, and factor in inflation to ensure you’re making the right investments for your child's future.

Also, secure yourself with a term insurance plan to protect your child in case of your death. Look at investing in PPF or equity mutual fund. Consider the Sukanya Samriddhi Yojana for a girl child.

It’s also very important to teach children early on about the value of money and inculcate a savings habit. Children emulate their parents and it is up to us to set an example for kids. Do not give in to all their demands and let them realise what you can afford and what is unnecessary expenditure.

If you’re saving for overseas education for a goal that is 3 to 4 years away, you can look to invest your money into Short-Term Debt mutual funds. Check out Mrin’s video on the best investment options for 3 to 5 years.

3. Building an emergency corpus

In her session on Emergency & Insurance Planning, Shwetha Bharathwaj offered the following tips on saving money for emergencies by building an emergency corpus.

• The ideal emergency corpus for a single salaried person with no dependants would be 3 months of living expenses or take-home pay.
• For a family with kids – where both husband and wife are salaried - it would be 6 months of your living expenses or the highest take home pay of husband or wife.
•  For a family with kids and self-employed husband and wife, it would be 9 months of your living expenses.

An ideal contribution to emergency planning would be 4 to 6% of your monthly income. Keep building your emergency fund if you already have one. If not, now is the time to start building one.

Make a budget every month and stick to the budget. Document your expenses to know your spending pattern and improve subsequently.

Invest into your emergency corpus every month without fail by investing your savings across various financial products like SB accounts, Short term FD and Liquid Mutual Funds.

However, the first step would be to determine the right amount for you. Once you have built your emergency corpus, you have to keep monitoring it and adding to it based on your changing needs.

Cashify your extra gadgets and invest in your emergency corpus. That means selling all the extra things you have and convert it into cash to invest for emergencies. 

The most important thing when it comes to short-term investments is to be mindful that you might need it at short notice so it should be highly liquid and accessible.

Even if these investments earn you a low amount of interest that's okay. You can consider investing in liquid mutual funds for this purpose. Short-Term MF schemes, Ultra Short-Duration MF schemes, Short-Term FDs are some of the options that you can try.

FD has a lock in period of the number of days / month / years you choose while depositing your amount. Liquid Mutual Funds now have a exit load of 7 days, which means if you redeem you investment within 7 days from the purchase of the liquid mutual fund, you will be levied charges.

You can pause your contributions to other goals for few months to build up for emergency funds. Unless you have an emergency, don't take money out of your equity MF.  If you really have an emergency in hand, then you can withdraw other investments based on your need.

For example, you may have to spend approx 7 to 10 lakhs in private hospitals for COVID-19 treatment depending upon the severity of your illness. So 7 to 8 lakhs of health insurance cover would be good, but you have to take in to consideration other pre-existing health conditions as well.

IRDAI as a regulator have been very proactive and pro customer. It has mandated insurance companies to give top priority to COVID insurance claims and honor COVID-19 claims as a part of the health insurance policy. COVID-19 riders are also available. But do check with your insurance service provider.

Anyone with a good emergency corpus, life insurance and health insurance are good to sail thru these troubled times. For those of us who don't have an emergency corpus, now is the time to start building one.

The right product for creating an emergency corpus would be a combination of savings account, FD, and Liquid MF. Investment in shares will not give you liquidity and will not serve the purpose.

There is no lock in for deposits in to Savings accounts. Download HerAlpha app from the Google play store to start your emergency planning journey.

4. How to save money for your marriage

If your marriage goal is just 2 to 3 years away, equity mutual funds would not work for you. You could look at parking your money in fixed or recurring deposits and low-duration debt mutual funds. Choose a debt fund carefully and ensure it has portfolio of high rated (AAA) papers.

5. Financial planning for housewives

Any investment plan must be made with a goal and a time frame for the same in mind. If you need the money back in say 3 to 6 months, no point parking the same in an equity mutual fund.

If you’re looking at equity mutual funds, do not look to park your investments for less than 5 years. Mutual fund investment returns are not guaranteed. So take a call based on your risk appetite, time horizon etc.

6. Financial planning for single women/widows

If you need tips for financial planning for a single woman or widow, you could look to invest in SIP in equity mutual funds.

The returns are market linked, so can't predict returns but if you stay invested for a long time, you could get good returns. Recurring SIP is also a good option. You could always invest in more than one instrument.

7. Retirement financial planning

Want retirement financial planning tips for seniors? These retirement investments options will help you build a retirement corpus so you can feel supported and secure in your golden years.

A good way to calculate your retirement corpus is to see how much you spend today. For instance, my current expenses are ₹80k a month and if someone were to ask me how much will be enough for me every month if I could retire today I would ₹1 Lakh a month.

You need to then see in the year that you want to retire what will that 12 Lakh a year be. You will need to consider the effect of inflation and see this number grow. The best way to plan for retirement is to start investing as early as possible.

If you’re working, you would be receiving Employee Provident Fund (EPF). Do not withdraw the EPF corpus as you need to use it for your retired life. You can also invest in the Public Provident Fund (PPF) and National Pension Scheme (NPS).

For those employed in private sector jobs, your Employees Provident Fund (EPF), or Provident Fund is the biggest investment for your retirement. Try not to withdraw from your EPF and keep that for your retirement.

You could also invest in PPF or equity mutual funds for your retirement. You could look at putting in some extra towards the same as Voluntary Provident Fund (VPF). Senior citizens can look at Senior Citizens Savings Scheme or Post Office Monthly Income Scheme or Recurring Deposits.

If your retirement is more than 10 years away and you can take risks, look to invest into equity mutual funds and stay invested for more than 10 years. Then move to a debt fund when you are 3 to 4 years away from retirement.

Equity mutual funds yield better returns if held for long time. But you need to be ready to take risk associated with investment into equity mutual funds. For students who can easily invest for more than 10 years, we recommend a mix of multi-cap and mid-cap fund.

Also keep in mind the rate of inflation, so for retirement after 30 years, you would actually need 2 crore 28 lakhs. You can use the Dreams calculator to check the future value for your goals.

If you plan retire at 55 or 60 and have a good 19 to 25 years ahead of you to grow your money, you could consider investing and building savings in mutual funds for the long term.

There are many MF schemes offered by top Mutual Fund houses exclusively for retirement planning. You can look at investing in them based on your risk appetite.

For strategic financial planning for senior citizens you can also choose to invest in Hybrid funds like the Balanced Advantage Funds or Dynamic Asset allocation Fund.

Your SIP amount will depend on your retirement corpus and how much you can set aside for the purpose of retirement. What happens here is that your money compounds considerably for your future.

Although PPF gives a reasonably good return it does not match how things are getting expensive, so slowly start small investments into your retirement corpus through mutual funds.

When considering your retirement goals, you could also look at a systematic withdrawal plan for a regular stream of income post retirement.

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Also read:

• Financial Planning Part 2: Investment Planning Options To Build Wealth
• Financial Planning Part 3: Buying The Right Insurance Coverage For Financial Protection
• Financial Planning Part 4: How To Manage Debt And Use Credit Cards Wisely
• 5 Smart Steps To Financial Independence For Women