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IC38 Chapter 7 Notes

Chapter 7


Financial planning is a process to identify his goals; assess net worth; estimating future financial needs; and working towards meeting those needs.


  • Short term – buying LCD Television; family vacation.
  • Medium term –buying a house
  • Long term – Children‟s education/ marriage; post-retirement provision.

 A) Economic Life Cycle :–

  • Student Phase – this is pre-job phase. One is getting ready for earning phase.
  • Working Phase – this phase starts around 20-25yrs of age and lasts for 35-40yrs.
  • Retirement Phase – this phase is where-in one has stopped working.

 B) Individual life cycle

  • Learner [till age 25] – this is the learning phase of an individual.
  • Earner [25 onwards] – this is the phase when one starts earning.
  • Partner [28- 30yrs] – this is the phase when one gets married.
  • Parent [30-35yrs] – this is the phase when one move towards parenting.
  • Provider [35-55yrs] – this is the phase when parents have to fulfil children‟s needs.
  • Empty Nester [55-65yrs] – this is the phase when children get married.
  • Retirement [60 onwards] – this is the phase when one gets retired and there‟s no regular source of income. Health also gets deteriorating.

C) Individual Needs –

  • Enabling future transactions – making provision for future transactions such as education, marriage.
  • Meeting contingencies – keeping money for unforeseen events like unemployment, hospitalization, death etc.
  • Wealth accumulation – this is to be done for increasing your money value.

D) Financial products – for above needs to be fulfilled following products can be used

  • Transactional product – bank deposits can be used for cash requirements.
  • Contingency product – Insurance can be used to protect against unforeseen events.
  • Wealth accumulation product – shares; bonds can be used to invest for wealth creation.

Role of Financial Planning: – It is a process in which clients current and future needs are considered and evaluated along with his risk profile and income assessment. Financial planning includes – Investing, Risk management, Estate planning, Retirement planning, Tax planning and financing daily and regular requirements.

The right time to start financial planning is when one starts receiving his 1st salary.

Need for Financial Planning: – Disintegration of joint family; multiple investment choices; changing lifestyles; inflation; other contingency needs.

Financial planning – Types :

  • Cash planning
  • Investment Planning
  • Insurance planning
  • Retirement planning
  • Estate planning
  • Tax Planning

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