THE 3-1 PRINCIPLE FOR AN EFFECTIVE FINANCIAL PLANNING BY A SALARIED INDIVIDUAL

In the developing economy like India, the class which is impacted financially the most due to any slightest change in the economic climate nationally or globally is none other than the middle class that too the salaried segment

- ESNB Srinivas

The reasons are many but one among them is their ambitious approach for a quick change in their lifestyle and financial status. They always struggle for better prospects for their wards. A proper financial planning in place would make their dreams come true despite adversity. It is the 3-1 principle - the Three "I" are INFLATION -INCOME TAX -INSURANCE. This Article describes how to deal with these parameters.

The first I namely Inflation - means increase in the prices of various commodities over a period of time. It is quite surprising for many and shocking for a few that despite an increase in their salary, how come there is no increase in their savings. There are TWO reasons for this the first reason being that the increase in income may not be sufficient to hedge against the inflation rate - and the second being that he is spending more than he requires, thinking that he deserves better lifestyle as his earnings have increased. Whatever may be the reason- the inflation leads to less savings for future and ultimately leads to poor financial situation in future.

To curtail this tendency, one has to chalk out the details of his spendings-category-wise like rent, groceries, Petrol expenses for daily travel, weekend eating out, holiday travelling, etc. After this one has to check out the inflation on each category. This exercise would tell where to cut the expenses or postpone them for the time-being. This will help to maintain the same level of savings/Investments despite an increase in the inflation in the economy. One has to prepare to set aside at least 25% of his income towards his future financial goals. Once this becomes a habit, the inflation does not bother much and the increase in the income due to salary-hike automatically increases the savings for the future financial needs like children education/ marriage or leading a happy retired life.