While I am not a fan of rules of thumb and usually take a clinical approach to zero down on requirements like retirement wants, how much insurance you need or how much you need to invest in equity, not all the readers here can do the number crunching.
For investors such as these, it makes sense to follow some thumb rules to ensure you at least start on the right track. Among the questions I raised above, I have tried my best to show how much loan you can take, how much emergency fund you should have and others.
Please go through the infographic and let me know what you need me to add.
Please click on the image if you wish to see a bigger and better infographic.
This is good stuff, very good reckoner…
Can you please provide an example for option 4, how much one needs to save for retirement. For eg. an individual is earning 1 lakh per month and his monthly expenses are 30k.
Knew about the rule to double the money but never knew about tripling your money.
Ditto, even I couldn’t understand the concept of how much to save for retirement in this infographic.
Please explain in simpler words with an example probably.
It is said that at any point of time you need 20 times your income for retirement. In the example above, the individual will need 20 lakh per month as corpus to replace 24k per month of expenses. This is a very crude thumb rule. If you calculate, you will realize the rate of return is 1.2% which is a bit unpractical, hence the rule is crude !
Excellent graphics – i think the starting point for 90% of the people should be to get a good Financial Advisor (http://insight.banyanfa.com/?p=828).
I find it so interesting that one of the most qualified financial experts – CAs find it as a zero revenue earner and hence professionally neglected stream !! A person would pay a fortune to take expert health advise from a doctor – but would not spend a dime to get financial advise – India is a land of free financial advise… and above all we have excellent financial advisory blogs like yours which further advocates no need for financial advisors 😉
Regards
BanyanFA
Are you suggesting financial blogs shouldn’t exist? 😉
I didn’t mean that. What I was mentioning that due to such a rich resource available on the internet, people find the blogs as a ready reference to answer their financial advisory questions.. No offenses..
None taken BFA.
I think these blogs will create awareness among people and they will realise the importance of financial planning. If I see in the long run, it will be more beneficial for the people as well as financial planners.
Dear BanyanFA,
Feeling pity, since you represent Financial Advisors and you are saying CAs as financial experts. Boss CAs are tax experts not financial experts. please rectify your line.. 🙂
Hi Surekha,
Unfortunately I am a CA as well. I would probably not agree with your comment that CAs are Tax Experts and not financial experts. If you read my link above, I do maintain that not all CAs use their financial expertise in financial field. However, the amount of grilling CAs get to get through their exams and their professional training, I firmly believe that they are amongst the best suited financial advisors from all angles (not just taxation). Tax is just one angle of financial advisory.
How was that ?
Vow, what a timely comment ! I just published a post of how a CA has misled a client.
Unfortunately, I do not agree that CAs have holistic views of financial planning. You must be the first person who I see into financial planning. All the others I see are into individual/corporate tax and so take out less time to do planning.
It is not that they cannot be good planners; in the same way as CFPs cannot be good planners as well.
Thoughts ?
Pretty interesting discussion.
I think CAs get into taxation because the concept of financial planning is still premature in India.
Also, there is more money in tax business and one gets an opportunity to travel abroad as well. CAs who are into financial planning would probably be purely due to their passion and interest and some may be in for greed too, looking at the recent post of rip off.
@ Vivek,
Probably I might not be agreeing to your comments and I fail to understand the linkage with foreign travel ?? I do agree that the financial planning is premature in India not because CA’s don’t know how to do it, but because the client doesn’t want to pay for it !! A person would pay fees only to protect him from something which harms him right now – not in future. Hence he would pay fees for a doctor to cure him for a disease which he has got now. He won’t go to a doctor for a regular check though.
Similarly, he approachs a CA to protect him for the danger of the tax man.
Nice, nice keep in coming BFA, I like your one liners. I will make in infographic out of them !
Cool, these rules are enough to start with……. Thumb rules are always as easy as effective.
Insurance should be 8-10 times of annual income, is this gross or net?
Gross income.
Looks like I need more insurance 🙂
I have always considered the net income.
This is pretty good ready reckoner for people who are setting their goals and even who have goals just to review and streamline where required.
Keep the infographics coming, I really enjoy them.
Excellent presentation…
Thanks.
Excellent.