Family first: An inclusive financial planning approach

Despite its challenges, the year 2020 had a lot of fresh learnings for all of us. This year brought us closer to our family and made us acutely aware of the need to have a solid financial foundation to tide over the rainy days. As we look forward to closing this year in the company of our loved ones, it is an opportune time to think of the future. While planning for a normal life post the vaccination, do take out time this holiday season to discuss money matters as well.

We often tend to ignore involving family members in financial discussions. Traditionally, financial planning is seen as a responsibility of the head figure of the family, and money matters are barely discussed openly. This narrative needs to change. Valuable insights into the household budget can come from those in charge of running the house.

The foundation stone for prudent financial planning is to define and quantify financial goals. Apart from the overall household needs, goals must consider the aspirations of each family member. For instance, when seen in isolation, we may just focus on goals like a new car, new house, retirement planning, etc. However, after consultation with family, goals like a family holiday, education in a specific university, healthcare for elderly parents, etc. may find their way to the list. Hence, it is important to take a holistic approach while planning finances.

Choosing suitable investment options

Once the goals and timelines are defined, decide on the best investment options to achieve the goals. Amidst the wide range of investment options available in the financial markets, one must choose the investment products best suited to the risk appetite of the family and the investment horizon. It is recommended to include the following in such discussions:

Equities: Equities, with their inflation-beating results, are the most preferred option for long-term goals. The exposure of equity in the portfolio can be arrived at after gauging the level of comfort of the family with the proposed percentage. Educating the family members on the pros and cons of such investments can be a good starting point for a constructive discussion.

Mutual Funds: For families with limited knowledge of the equity markets, mutual funds can be a good option. They can choose from a wide range of debt and equity mutual fund schemes for their short, medium, and long term needs. Investing in mutual funds not only offers higher returns than traditional options but also provides ease of diversification.

Fixed-income small savings schemes: Several investment options under small savings schemes like Public Provident Fund (PPF), National Savings Certificates (NSCs), Kisan Vikas Patras (KVPs), Post Office Monthly Income Scheme (PO MIS), etc. are now available. Most of these options carry interest rates benchmarked with G-Sec yields. For conservative investors, such instruments can be a part of the debt portfolio for safety and guaranteed returns.

Investment options for senior citizens: Financial planning for the family should also include the financial requirements of elderly parents. It would be ideal to create a separate investment corpus for the same. Such corpus can be invested in conservative products that provide regular cash flows through interest pay-outs, like PO MIS, bank deposits, etc.

Sufficient insurance cover: It is crucial to take care of future contingencies and have adequate life and health cover for the entire family. While health insurance protects the risk of medical emergencies draining life savings, life insurance provides a financial cushion for the dependent family.

Financial discussions with other family members can be a great learning opportunity. Two generations, of father/mother and son/ daughter, tend to be opposite in terms of their investment preferences and knowledge of financial planning. It is advisable therefore to learn from each other while working towards the common goal of securing family finances.