‘Cash Flow Analysis’ is the key to ‘FinnCore’
Managing your financial health is important, and one of the best ways to be fiscally fit is to expertly control what goes in and what goes out of your bank account on a monthly and annual basis. One of the fundamental building blocks for wealth creation and long-term financial security is spending less than you earn. Many people, whether of high or low income level, fall into the trap of over-spending and building debt.
What is Cash Flow?
Cash flow refers to the in and out motion of money. To engage in the process of cash flow management it involves understanding the components that make up where money comes from, where it goes and what choices are appropriate to meet your lifestyle goals. It’s an active, continuous process.
How We Perform a Cash Flow Analysis?
We at Master Mind FinnAsset analyze your cash flow by looking at all of your income sources, fixed expenses, discretionary expenses, taxes and savings. This allows us to get a better understanding of your financial situation and gives us the ability to project future scenarios.
For example, if you’re approaching retirement we can project how much money you will have during retirement and then calculate if that money will last throughout your life while factoring in future taxes, inflation and the projected rate of return on your portfolio. Analyzing your cash flow throughout the year will help us to monitor your retirement income so you can make sure you’re bringing in more cash than you’re spending.
What are Cash Flow components?
Income
Income can include salary, bonuses, self-employment income, and passive or investment income.
Fixed Expenses
These are expenses that do not change from period to period and often include rent, mortgage, utilities, and loan payments.
Discretionary Expenses
These expenses are not essential for the operation of a home or a business and more control can be exercised over these costs.
Taxes
Make sure to consider the impact of taxes on your spending plan. It is not what you make, but what you keep that counts. If you are self-employed, tax management is an even more critical aspect of planning.
Savings
This is the most important element to reaching your financial goals. It is important to include monthly and annual savings, and deposits to cash reserves.
After the creation of the monthly cash flow plan, we are not done!
We at Master Mind FinnAsset will review your Net Worth Statement in the end of every financial year and define what portion of the increase came from savings (as opposed to changes in asset values and debt reduction) to see if you are on track with long-term planning goals. If you adhere to your cash flow plan, your net worth should reap the benefits!
True financial assesment requires the combination of goal-based plan with cash flow analysis. This is the only way to create a truly feasible and comprehensive plan.
Remember, it is important for you to have at least a basic idea on where their money is going.
FinnCore is not about predicting the future, but rather being prepared for its unpredictability. This is where cash flow planning becomes important to the process. You cannot account for every eventuality, but cash flow planning allows you to stress test your plan for common concerns such as:
The what-ifs are innumerable, but FinnCore do tend to overlap.
With retirement not far around the corner, your needs will be rapidly changing. And you will be asking the big questions – what does retirement mean to me, and will I have enough? How can I be better off? As our lives change, our financial needs and priorities change too. Even if you are years away from retiring, you are wise to be thinking about retirement. Years from now you will be a lot happier saying, “I’m glad I did” instead of “I wish I had”. A retirement plan is an assurance that you will continue to earn a satisfying income and enjoy a comfortable lifestyle, even when you are no longer working. Investment Locker will help you understand how much you need to grow your wealth before you retire and how to plan for it.
Concerns of Retirement
Most people are faced with three important questions when they start thinking of Retirement.
When can I retire?
How much money do I need to have to retire?
How do I create regular Retirement income?
Retirement Goal means saving sufficient funds to provide for a comfortable lifestyle after retirement. We can plan and advice you how to build up your Retirement savings over a period of time from now. We have proven asset allocation strategies that will help you get higher inflation-adjusted returns on your existing assets. We also track and re-balance their assets to protect it from the volatility of the markets.
The Optimistic Retirement approach can help you feel more confident about retirement and your financial future
Theres a confidence that comes with knowing you and your advisor are following a time-tested approach to financial planning. Youll come away feeling more confident knowing you have the advice and guidance you need to help:
Cover your essentials now and in retirement
Ensure your lifestyle. Your hobbies, travel and dining-out throughout your life
Prepare yourself and the people you love against the unexpected things that come up every now and then
Leave a legacy to the people and causes you care about
Tax Saving is not a device to reduce tax burden. In fact, it helps savings by investments in government securities. Savings reduce extravagance, and correspondingly inflation. Tax savings are permitted only for investment made in government securities and bonds of priority sectors which ultimately help the nation. Therefore, the savings in tax help the Central and state governments to mobilizes funds by way of investments and as such the government earns much by way of other benefits, by sacrificing small amount of tax. The Supreme Court in one case observed that Tax planning may be legitimate provided it is within the framework of Law. By tax planning, the government is equally benefited.
Savings and investments are interconnected. Before making investments the person has to consider various factors such as:-
This varies from person to person. A person by investing in NSC saves on his tax. However, the interest on the investment is taxable. Again, if the investment is made in PPF, he is not liable to pay the income tax on interest. But the period of NSC is six years whereas in the case of PPF the period of repayment is 5 years. However, a portion can be claimed after 7years. Thus the person who makes the investment has to consider whether he requires the amount after 5 years or he can wait for a longer period.
To make investments there should be savings. A lower income person also wants to save, but his gross income and day-to-day expenses dont leave him anything to save. For example, if he has to save Rs 20 from tax by investmenting in NSC, he has to invest Rs 100. Sometimes considering his financial needs he will be prepared to pay the tax of Rs 20, so that Rs 80 is there for his other needs. Therefore, the capacity of savings is also very relevant. To increase savings one should make investments that give reasonable returns. Again this return becomes a saving if invested. This booklet talks about the deductions available under various head such as salary and house property and also various modes of investments and tax deduction available from the said investments. The rebates, concessions and-liability of tax in this article are with reference to the assessment year 2001-2002 (financial year April 1, 2000 to March 31 2001). The amendments made by the Budget 2001 are also touched upon in brief.
Tax planning should be an important component of your overall financial plan. Careful planning is the key to successfully and legally reducing your tax liability. There are proven strategies for reducing taxes for individuals and families. We proactively recommend them to maximize your after-tax income. We make it a priority to be up-to-date on changes in the tax laws, complexity of the tax code, and new tax regulations. We continually look for ways to minimize your tax liability taking into account all deductions allowed while using modern tax preparation software.
We help you to:-
Insurance provides financial protection against a loss arising out of happening of an uncertain event. A person can avail this protection by paying premium to an insurance company.
A pool is created through contributions made by persons seeking to protect themselves from common risk. Premium is collected by insurance companies which also act as trustee to the pool. Any loss to the insured in case of happening of an uncertain event is paid out of this pool.
Insurance works on the basic principle of risk-sharing. A great advantage of insurance is that it spreads the risk of a few people over a large group of people exposed to risk of similar type.
Definition
Insurance is a contract between two parties whereby one party agrees to undertake the risk of another in exchange for consideration known as premium and promises to pay a fixed sum of money to the other party on happening of an uncertain event (death) or after the expiry of a certain period in case of life insurance or to indemnify the other party on happening of an uncertain event in case of general insurance.
The party bearing the risk is known as the insurer or assurer and the party whose risk is covered is known as the insured or assured.
Concept of Insurance / How Insurance Works
The concept behind insurance is that a group of people exposed to similar risk come together and make contributions towards formation of a pool of funds. In case a person actually suffers a loss on account of such risk, he is compensated out of the same pool of funds. Contribution to the pool is made by a group of people sharing common risks and collected by the insurance companies in the form of premiums.
WHY SHOULD I BUY INSURANCE?
All assets have some economic value attached to them. No person can deny that there is also a possibility that these assets may get damaged/destroyed or become non-operational due to risks like breakdowns, fire, floods, earthquake etc. Different assets are exposed to different types of risks like a car has a risk of theft or meeting an accident, a house is exposed to risk of catching fire, a human is exposed to risk of death/accident. Insurance is needed because of following reasons:
Social Security Tool
Insurance acts as an important tool providing a sense of security to the society on a whole. It is the right of every human-being to have basic amenities like food, clothing, housing, medical care, standard of living necessary for his personal and family is well being, and right to security in case of unemployment, disability, sickness or any other circumstances out of his control.
In case the bread earner of a family dies, the family suffers from direct financial loss as family is income ceases. As a result, family is economic condition gets affected unless there are other arrangements to rescue the family from this situation. Life insurance is one alternate arrangement that offers some respite to the family from financial distress. Otherwise this family would have been pushed into the lower strata of the society, which would be an additional cost to the society. This is because subsidies would have to be given to the family so as to enable it to survive and enjoy the basic rights at par with other people. Moreover, a poor family is generally seen to have a large family size with family members being illiterate. This on a whole affects the society and is a cost to the society. Therefore, insurance compliments the state in social management efforts.
Uncertainty
The basic need of insurance arises as risks are uncertain and unpredictable in nature. Getting insurance for an asset does not mean that the asset is protected against risks or its exposure to risk is reduced, but it actually implies that in case the asset suffers any loss in value due to such risk, the insurance company bears the loss and compensates the insured by making payment to him.
Economic Development
The premium paid by people to the insurance companies is a part of their savings. Insurance, thus, acts as a useful instrument in promoting savings and investments, particularly within the lower-income and middle-income families. These savings are ultimately used as investments fuelling economic growth.
General Purposes of Insurance
Insurance is widely popular and beneficial because of its following general purposes:
These plans are best suited for people aged upto 35 years as it provides higher protection at low cost. These plans are also beneficial for a person whose income is low and want to secure their family from financial default in case of his death.Protection or safety (Term insurances)
Marriage or education of the child (Children plans)
Speedy growth of money & risk cover (Unit Linked Plans)
Saving and Protection (Endowment type plans)
Introduction of Health Insurance or Mediclaim
The last decade has been favorable for the medical industry. A stupendous rise in the gamut of medical services in the wake of medical advancement has made this industry one of the significant contributors to the gross domestic product of the Indian economy.
On the darker side, there is a steep rise in the cost of medical services thereby making it difficult for people to afford medical treatment. There have been cases of people committing suicide after giving in to the excessive financial burden. In extreme cases, people prolonged taking medical treatment to an extent that it became very late. Moreover, some of the bed-ridden patients even attempted suicide to relieve their family from medical expenses. Such problems are normally faced by poor and middle economic strata of the society.
To overcome such a situation, medical insurance, commonly known as mediclaim and health insurance, was introduced on a large scale. Insurance companies aggressively promoted this new facility to people and easily found many takers. Mediclaim/ Health Insurance is a complete health package that provides many medical benefits to people in order to ensure their well-being at any stage of life. Different insurance companies offer various mediclaim policies with varying premiums and benefits. You can easily compare the plans and choose the one that covers your health risks at the cheapest premium amount. Family health insurance is normally highest in demand as it extends the benefit to the entire family.
Mediclaim is a boom in the health sector that has made it possible for everyone to take the best medical treatment without fearing the expenses. This has gone a long way in saving the lives of many due to timely and proper medical care at the right medical center.
Recently, government has also included ayurveda, unani, homeopathy, and other alternative systems of medicine under insurance cover. This favorable move has brought those people within the insurance bracket who have faith in such medical systems.
Women health during pregnancy and infant care are one the neglected areas in our society. Therefore, insurance companies offer special mediclaim packages that cover the hospital expenses of delivery and post-natal services as well as the well-being of a new-born baby.
Saving, protection & liquidity (Money back plans)The above purposes apply for life insurance. In case of General insurance the basic purpose is to protect the insured against financial loss suffered by him or creation of liability, due to the causes covered by the policy.
Today, we all know that prices are sky high and our demands are hitting the roof. Spending has catapulted rapidly. There was a time when parents did not have to bother about personal finances but today the scenario has altogether changed. A parent today is far more concerned about expenses and how they are going to be met. Is it the banks and investment service providers that have created a change in the mindset of parents that they cannot do without financial plan or is it truly a need? This question stands debatable.
Pros and Cons
For a parent, financing his Childs education is of prime importance. Future is uncertain and this very point is striking the brains of parents today. The Child insurance needs are also being looked into, well in advance. Various strategies are being arrived at, to fund children education and future. Financial services professionals and fund managers are hitting upon new techniques and strategies targeted at children. Parents are also seeking answers to this problem as it is giving those sleepless nights. While some parents live for the moment others are trying to scratch their foresight.
Giving your child insurance and educational benefits:
1. Bank savings interest rate has dropped marginally. New options to multiply your money are the need of the hour. Invest in mutual funds. Mutual funds come with a promise and a person can earn a huge sum of money as an interest payment. These are also attractive for their low risk. The returns generated here can be used for your Childs future.
2. Invest in child policy schemes. Various child policy schemes have been introduced by commercial banks. These have a certain lock-in period. Generally it varies between 1-10 years. A lump sum is earned after the lock-in period and can prove to be very helpful at the stages when you need money in the future.
3. The benefits of investing in these schemes have long term as well as short term implications. On the short term one can enjoy an exquisite living. The needs of your child have been catered to in advance. In the long term there are no financial hassles due to the investment you do now. The Childs educational needs will be easily met. Besides that, there is a huge potential for returns. Many companies offer more than 30 % returns and this money too can be used wisely later.
4. The parents in a nuclear family have the option to include their child in the life insurance policy as their beneficiary. The plans should be decided based on your objective. It may be to fund a Childs education or give him long term benefits in terms of money. Thus putting the child as the beneficiary in an insurance policy can meet the Childs financial requirements for various purposes like education.
Why
In the absence of a will, the distribution of the estate is governed as per laws of the nation. If you are a Hindu it is as per Hindu Succession Act 1956. For Christians, Jews and Parsis it is as per the Indian Succession act 1925. If you are a Muslim your property will be divided according to Muslim Personal Law.
After ones demise if he/she has no estate plan that includes a will, he/she is considered to have died in estate, and the state where he/she live will determine who gets your asset as determined under the states inheritance laws. This means that ones loved ones might be left out at disposition of the property, and in the worst situation when there is no body to claim it then government becomes the owner of the same. Therefore estate planning is very much required as this is ultimately planning for ones own assets with the future perspective.
What
An estate plan is the process of planning for the orderly administration and disposition of property after the owner dies.
An estate plan can be as simple as having a will and naming a beneficiary, or as complicated as having several trusts for different purposes in addition to the will. Estate planning involves making plans for the transfer of your estate after death. Your estate is all the property that you own. It can include cash, clothes, jewelry, cars, houses, land,
retirement, investment and savings accounts, etc.
The Methodology
Will: In a will you state how you would like to distribute your assets (land, property, gold, cars) after death. Who should get how much? This is basically what a will is all about.
You need an executor (someone you trust) to execute the will on your behalf (Make sure that your wish is honored as you are not around to do the job yourself).
Trust: A trust is used to transfer wealth to your heirs (children).These trusts have to be compulsorily created/ registered and governed under the Indian Trusts Act 1882.
In a trust you (Settlor) can transfer your movable property such as a car as well as immovable property such as property or land to the trustee (person who holds the property on behalf of your beneficiary/children).
The trustee is the executor (manager of the assets) on behalf of your beneficiary and ensures that your wealth reaches the beneficiary irrespective of what happens to you.
You can transfer shares/mutual funds, fixed deposits, cars, land, apartments/house, gold, art as well as antiques to the trust.
Nomination: If you have a fixed deposit, shares or mutual funds you need to make a nomination, where you state who will get the money lying in these accounts on your death. The person you appoint is the nominee. The nominee (basically someone you trust) transfers your wealth/investments to your heirs (Children).The nominee is not the owner/inheritor of your wealth. He is a protector/trustee of your wealth and makes sure your beneficiaries (heirs) receive the money. Nomination is done mainly for shares/mutual funds, life insurance policies or land and property.
When you die after making a will your beneficiaries/heirs inherit your property/wealth. The nominee you appoint (could be your nephew or a lawyer), serves as a trustee and makes sure your wealth reaches your heir. A nominee is not permanent and you can change your nominees any number of times. You can appoint your heirs (children) as nominees. If your child is a minor and you appoint him as a nominee you need to appoint an assignee who serves as a guardian.
Review
Estate plan should not be considered permanent because your desire may change. Estate plans should be reviewed at least every two-three years but, additionally, any important change in your life demands immediate review.
Objectives and goals of Estate Planning
In India, in general people tend to neglect it for a number of reasons including complacent attitude or to save on taxes or nomination is already there or I don’t have any assets at all.
This often results in protracted legal battles for succession. For the smooth succession of assets, hence, it is advisable to form a private trust — a popular way of estate planning.
Under the Indian Trust Act, 1882, a trust may be created for any lawful purpose by the settlor (the person creating the trust) in his lifetime by a non-testamentary instrument or through a Will. One can create a family trust or for the sole benefit of an individual.
The Law
If the trust is created for the sole benefit of a person, then under Section 56 of the Indian Trust Act he at any time could ask the trustee to transfer the trust property to him / her or to a person as he may direct, in which event, the trust will come to an end. If the family trust has been set up then more number of people would be involved. A settlor could also bequeath his/ her absolute property (in his/her Will) to the trust that he / she proposes to set up. However, if the settlor wants to transfer the property in his/ her lifetime then the transfer becomes liable for stamp duty under the Indian Registration Act.
In case, the settlors property is conveyed to the trust as per his/ her Will, then no stamp duty would be payable on the transmission of the property to the trust.
Trust Deed Creation
To translate the intentions of the settlor into a document called the trust deed is the logical next step. A charter document of the trust, it should be drafted and reviewed carefully to remove any anomaly.
Trust Structure
The nature of the trust is decided keeping in mind a number of factors such as the citizenship of the settlor or beneficiaries, the ownership pattern and location of the assets, etc. Depending on all these factors, the nature of the trust is decided. It could be discretionary (i.e., where the allocation would be at the discretion of the trustee) or nondiscretionary (where the settlor states specifically how the distribution of the trust property is to be made). It could be revocable or irrevocable. It has an implication from income tax perspective as well for both settlor as well as the beneficiary.
Trust Composition
A number of trustees are appointed for the administration of the trust. The trust deed or Will should clearly specify the intention behind the creation of the trust, its purpose or objectives, and who would be the beneficiary or beneficiaries. If the trust is created during the settlors lifetime, further properties can also be transferred to it.
A trust is set up keeping the welfare of certain individuals in mind. Following are the persons who are associated with the trust –
Trust Instrument
The trust deed is executed by the settlor and trustee elaborating on the intentions of the settlor and the nature of the trust structure. It should clearly state the name of the settlor, trustees and beneficiaries, their powers, appointment and removal, distributions to the beneficiaries and their succession plan and the date of dissolution of the trust.
One must remember that, the structure of the private trust is technical in nature, and requires legal and tax expertise, it is advisable to get the trust deed made by the professionals only.
