Taxmann's Finance For Everyone | UGCF

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Second Edition : June 2024

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ABOUT THE AUTHORS

Prof. (Dr.) Amit Kumar Singh is a Professor in the Department of Commerce, Faculty of Commerce and Business, Delhi School of Economics, University of Delhi. An alumnus of Kirori Mal College and Department of Commerce, Delhi School of Economics, University of Delhi, he is also a gold medalist in the M.Com. examination of University of Delhi. A recipient of various medals and prizes at the post graduate level, he completed his M.Phil. and Ph.D. from Department of Commerce, Delhi School of Economics, University of Delhi. He specializes in the area of Finance and Investment Management and Initial Public Offerings and has a teaching experience of more than 20 years. He has authored/co-authored 8 books and has more than 100 research papers published to his credit in ABDC, Scopus and Web of Science indexed journals. He has presented many papers in national and international conferences. Prior to joining the Department, he taught in Shaheed Bhagat Singh College, University of Delhi for about twelve years. He recently received Distinguished Alumni Award from Kirori Mal College.

He holds several key positions in various areas. He is appointed as Joint Director of Delhi School of Public Policy and Governance (DSPPG), Institute of Eminence, University of Delhi. He was the former chairman of the Governing Body of Gargi College, University of Delhi and former treasurer of Maharishi Valmiki College of Education, University of Delhi. Currently, he is the member of the Governing Body of Miranda House, University of Delhi. He is a nodal of cer of Youth for Nation Forum, University of Delhi. He is a member of Financial Literacy Committee, University of Delhi. He has also been nominated as a member of Internal Complaint Committee, University of Delhi. He is the life member of the Indian Accounting Association and Indian Commerce Association. He has been a coordinator for Commerce DSC interface since 2019 and has conducted more than 100 workshops and guideline meetings for B.Com. (Hons.) and B.Com. (Prog.). He is also a coordinator in Financial Inclusion Committee, University of Delhi. Recently, he has also been elected as Vice-President of Delhi Chapter of Indian Commerce Association.

Dr. Rohit Kumar Shrivastav is working as an Assistant Professor in the Department of Commerce, Faculty of Commerce and Business, Delhi School of Economics, University of Delhi. He has done M.Com. and Ph.D. from the Department of Commerce, Delhi School of Economics, University of Delhi. His area of specialization is Finance and has a teaching experience of more than 10 years. He has more than 15 research papers published to his credit in ABDC, Scopus, UGC Listed and Peer-Reviewed journals & 3 chapters in edited books of reputed publishers. He has presented more than 25 papers in national and international conferences. Prior to joining the Department, he taught in Dr. Bhim Rao Ambedkar College, University of Delhi for about nine years. He is the Assistant Programme Coordinator of MBA (Business Analytics) Programme and Assistant Editor of Journal of Commerce & Business Studies of the Department of Commerce, University of Delhi. He is the life member of the Indian Commerce Association.

PREFACE

“Financial freedom is available to those who learn about it and work for it.”

Robert Kiyosaki

It is my great pleasure to present to the readers the second edition of the book Finance For Everyone. Financial freedom is something which is desired by all. However, is not something which comes naturally. It required a great deal of discipline. The more time one dedicates in mastering the nancial skills, the better he/she become in making nancial decisions with con dence. A prerequisite to attaining nancial independence is to rst become nancially literate. Financially educated individuals make better decisions about their families thereby ensuring their nancial wellbeing. Secured families are better able to contribute to vital, thriving communities, resulting in community economic development. While the need for nancial education has always been given due importance, it has assumed greater urgency with the introduction of wide range of nancial goods and services. Rapid development of ntech is the key reason behind the expansion of nancial industry. To take full advantage of these nancial innovations, nancial education is a must.

This course on Finance For Everyone was introduced by University of Delhi as a Generic Elective and Skill Enhancement Course for the undergraduate students under the implementation of New Education Policy with the aim to equip them with the basic skills need to become nancially sound and achieve nancial independence. The motivation behind writing this book has been my students. I have been teaching subjects like nancial planning and fundamental of investments since past many years and have been doing research in the similar domains. I have also given several lectures and seminars on various aspects of personal nance. So, when the opportunity came under New Education Policy implementation it became my moral responsibility to share my knowledge and experience to all the students.

The book is divided into 5 units which comprises of 10 chapters each dwelling into the key concepts of nance important for everyone.

Unit 1 talks about nancial literacy in general and introduce readers to the basic concept of nancial planning, budgeting, etc.

Unit 2 makes readers aware of the different banking products and services offered by banks and the cashless banking system present in India.

Unit 3 sheds light on the nancial services offered by Indian post of ce like India post payment bank, international money transfer facilities and government schemes offered via post of ces.

Unit 4 focuses on insurance and the types of insurance products and services available for general public like life insurance, health insurance, property insurance, etc.

Last but not the least, unit 5 entails some basic concepts on securities market like primary and secondary market, stock index, stock exchange, derivatives, shares, mutual funds, etc.

The salient features of the text presented in this book are:

1. Learning outcomes: Each chapter begins with learning outcomes to give brief context about the content and what the readers will achieve after successful completion of the chapter.

2. Main Text: Various concepts and topics have been explained in simple and lucid language. Wherever required, the examples and cases are added to enhance readers understanding.

3. Practice Questions: Each chapter provides a list of questions to test the knowledge of the readers. Readers can answer these questions to review their learning.

4. Activity: The bene t of learning the concepts of nance cannot be enjoyed unless it is applied to real life situation. Thus, each chapter offers activities for readers to ensure learning by doing.

The book is written in simple language to enhance readers understandability. The book is lled with ample examples from the real-life world to ensure relevance for newbie learners. Suf cient care has been taken in writing the manuscript for the book. However, there may be some unintentional errors. Feedback from the readers is solicited and would be thankfully acknowledged.

Prof. (Dr.) Amit Kumar Singh

Dr. Rohit Kumar Shrivastav

ACKNOWLEDGEMENT

First and foremost, I would like to thank the god almighty for his grace, strength and sustenance from the beginning of my academic journey. His benevolence has made me excel in all my academic pursuits. I can only say that my faith in him has become more and more intense with each passing day.

I am thankful to University of Delhi, who introduced this course which is an absolute necessity, thereby providing me this opportunity and motivating me to write this book. I gratefully acknowledge the support and best wishes of my teachers and students.

I would like to extend my sincere thanks to the staff of Ratan Tata Library for making available all the necessary reference material, help and facilities timely. The book could not have taken the present shape without the support and encouragement of my family.

Last but not the least I would like to thank to the TAXMANN publications for bringing this book out timely.

Prof. (Dr.) Amit Kumar Singh

Dr. Rohit Kumar Shrivastav

CHAPTER 2 FINANCIAL PLANNING

LEARNING OUTCOME

The learning from this chapter will enable students

Get familiarized with the nancial goals popular among the public

Understand how to prioritize and set nancial goals

Learn the concept of nancial planning and its need/importance

Become aware of the steps to follow in nancial planning

INTRODUCTION

We can all agree that the ultimate goal of financial literacy is to attain the required skills to prepare a sound financial plan. We all have various goals which we want to achieve in life like funds for higher education, owning house property, owning a vehicle, children’s marriage, retirement, etc. Without proper financial skills and knowledge, it is next to impossible to achieve all these goals. So, in this, we will understand the concept of financial planning and its need.

FINANCIAL PLANNING

Financial planning means developing a personal roadmap for your financial well-being. The outcome of the whole planning process is a path which needs to be followed to attain all the financial goals in the light of external hindrances like inflation, taxes, etc. It means systematically planning your finances in order to achieve your financial goals within the defined timeline.

FINANCIAL PLANNING PROCESS

The financial planning process involves several steps that an individual can follow to achieve their financial goals.

STEP 1: Define your financial goals

The first step in the financial planning process is to define your financial goals. Financial goals are the targets one intends to achieve through money manage-

ment. Setting financial goals can help in attaining financial discipline. They assist in encouraging savings and making conscious investment decisions. Some of the popular financial goals are given below:

Make a budget and live by it

Pay off credit card debt

Save an emergency fund

Save for retirement

Live below your means

Develop skills to improve your income

Save for your children’s education

Save a down payment for a home

Improve your credit score

When you analyse your goals, you will discover that some might take you some time to reach, while others do not so much. Thus, based on the time span, the financial goals are classified into 3 categories:

Short-term Goals: Short-term goals are nancial goals with a narrow scope and limited time horizon. It includes purchasing household electronics, furniture, house renovation, vacation spending etc. Moreover, the more important short-term goal is getting a grip on your spending, starting to practice budgeting, avoiding short-term debt defaults, setting a minimum limit of regular savings and starting building your emergency fund as soon as possible.

Midterm Goals: The tendency to weight nancial plans around the nearand long-term goals has been called the “barbell” approach. However, due considerations need to be given to midterm goals which take between 3 to 10 years to ful l. Some examples of medium-term goals are a down payment on a house, paying off a study loan, international vacation, starting a business, etc.

Long-term Goals: Your long-term goals are directed towards being done with your responsibilities and lining a comfortable and stress-free life. Thus, some popular long-term goals are children’s education, children’s marriage and comfortable retirement. These goals are realised between 20 to 40 years. These goals require disciplined investing because they cannot be compromised.

Attributes of Sound Financial Goals: SMART

S stands for Specific

What do you want to achieve? One should start by answering this question. The goals should be clearly outlined and how they can be achieved must be clearly stated. This also helps in keeping oneself motivated to stay on the right track.

Ambiguity about one’s goals can lead to confusion and chaos and delays in achieving them.

For example, if you aim to save for higher education of children you must answer the following questions.

How much do I need for this goal?

How long do I have to collect the funds for this goal?

How am I going to collect funds for this goal?

M stands for Measurable

The essence of this attribute can be phrased as “if you can see it, you can do it”. By measurable, we mean that one should be able to gauge his/her progress during the courses of fulfilment. This will help in keeping track of the current efforts and if any revisions are required in the efforts in the future. One can do so by putting small yearly milestones in the overall long-term goal to keep oneself in check.

For example, one can use a retirement calculator available online to gauge the process and see how much more is required to attain the goal.

A stand for Achievable

Wishful thinking can result in disappointment and mental distress. Financial goals are indeed challenging, but they should not be impossible to attain. One should be realistic about one’s goals and should perform thorough research regarding their attainability.

For example, currently, you are 28 with an annual income of Rs. 750000. You aim to retire at the age of 60 with a retirement corpus of Rs. 30000000. You have to ask yourself in light of current finances will you be able to achieve it or is it just wishful thinking?

R stands for Relevant:

By relevance, we mean that your goals should not be arbitrary. They should be personal to you and must hold some significance to you. The path to achieving financial goals can be very tough and daunting and if you set a goal which does not hold any significance to you, the journey will feel like a burden and you will not enjoy it.

For example, when planning your retirement as yourself:

Will my family expenses in the future affect my goal?

Are there any activities or hobbies of mine which can deter me from attaining this goal?

How badly do I need to achieve it in the required time period? Can it be compromised or delayed?

T stands for Timely/Time-Bound

There are a few popular phrases like “You have all the time in the world” or “Life is too long to fret about things”. They sound pretty nice and carefree. Right? But,

being carefree can cost you your future. The timeliness of the financial goals ensures that you are serious about your goals and can set priorities. Thus, putting a time stamp on your goals is important. It also gives you a realistic deadline which can help is guiding the quantum of your efforts to achieve them. This can be done by giving oneself regular timely deadlines.

STEP 2: Assess your current financial situation

The next step is to assess your current financial situation. This involves reviewing your income, expenses, assets, and liabilities. By understanding your current financial situation, you can identify areas where you may need to make changes in order to reach your financial goals.

STEP 3: Create a budget

Once you have a clear understanding of your financial situation, you can create a budget. A budget is a plan that outlines how you will allocate your income and expenses in order to meet your financial goals. It is important to track your spending and stick to your budget to achieve your financial goals.

STEP 4: Develop a financial plan

After you have defined your financial goals and assessed your current financial situation, you can develop a financial plan. A financial plan is a roadmap that outlines the steps you need to take to achieve your financial goals. It should include a timeline for achieving each goal, as well as a strategy for how you will achieve them.

STEP 5: Implement your financial plan

Once you have developed a financial plan, it is important to implement it. This may involve making changes to your spending habits, investing your savings, or making other financial decisions to help you reach your goals.

STEP 6: Monitor and review your progress

It is important to regularly review and monitor your financial plan to ensure that you are on the right track to attain your financial goals. This may involve reviewing your budget, adjusting your financial plan as needed, and making any necessary changes to your financial strategy.

By following these steps, you can create a solid financial plan that will help you achieve all your crucial financial goals. It is important to be proactive and disciplined in managing your finances, as this will help you achieve financial stability and security in the long term.

As rightly said by Annamaria Lusardi, a George Washington University professor who also is one of the world’s foremost experts on debt management “The bottom line is everyone can do more and everyone should do more to plan for their financial future,’’ and “Make a plan, then follow that plan.’’

2.5

PRACTICAL BENEFITS TO FINANCIAL PLANNING

Financial planning helps you to:

Increase your saving: It is not impossible to save money without a nancial plan will it be ef cient that is something to be thought about. When you make a nancial plan you become aware of your income and expenses which will help you in keeping track of them and assist in practising cost consciousness, which will automatically help you in increasing your savings in the long run.

Enjoy a better standard of living: It is assumed that high monthly bills and EMI repayments hinder your living standards. It is not true. A well-developed nancial plan will help you to honour your obligations on time, meet all your expenses and still enjoy a comfortable and stress-free life.

Be prepared for emergencies: The creation of an emergency/contingency fund is a must. It is the rst step towards a stress and anxiety-free life. Unexpected nancial distress can affect your mental health, which in turn affects your performance, which ultimately results in a loss of income stream. Thus, it is advised to maintain a fund equivalent to 6 months of your expenses.

Attain peace of mind: A person practising nancial planning is able to manage his/her nances properly and have a peaceful mind. Sometimes you might hit rock bottom, but you should not be discouraged because ultimately you will reach your goal if you stay disciplined in the path of your goals. It might take you some time, but you will reach the stage of nancial peace.

NEED FOR FINANCIAL PLANNING

The financial plan serves as a guide as you go through life’s journey. It helps you to manage your income, expenses, and investments in such a way that you can manage your finances and achieve your goals. You need to have enough money to achieve your goals and desires.

Personal finances can help us increase our cash flow. Keeping track of our expenses and usage patterns enables us to increase our revenue. Careful planning, careful spending, and careful planning ensure that we do not lose the money we have worked hard for.

A well-defined plan ensures that you do not deviate from them. It reduces the mental stress and anxiety related to financial well-being. If the goals are well defined in the planning process, one can customize the strategies in order to attain them.

We all agree that everyone thrives when appreciated for one achievement. As you attain your goals in your life, it will give you a sense of achievement which will further act as a motivator to stay motivated for future goals.

Personal finances include concepts related to money management, savings and investment. It includes banking, budgeting, debt, investment, insurance, retirement planning, and tax planning.

PRACTICE QUESTIONS

1. What do you mean by nancial goals? List out some of the commonly identi ed nancial goals.

2. Explain different types of nancial goals.

3. What are the attributes of a sound nancial goal?

4. What is nancial planning? Mention the steps in nancial planning.

5. What is the need and bene ts of nancial planning?

PRACTICAL EXERCISE

1. After learning in detail about financial goals and financial planning, you were keen to share your knowledge with your elder brothers/sisters. While talking with you they disclosed that they never thought about developing a formal financial plan for their life goals. They asked you for your help. You are required to help them to analyze (using SMART) and set their financial goals and develop a well-structured financial plan. Document the whole process.

Finance For Everyone | UGCF

AUTHOR : AMIT KUMAR SINGH , ROHIT KR.

SHRIVASTAV

PUBLISHER : TAXMANN

DATE OF PUBLICATION : JUNE 2024

EDITION : 2nd Edition

ISBN NO : 9789357788717

NO. OF PAGES : 160

BINDING TYPE : PAPERBACK

DESCRIPTION

This book is designed to help readers achieve financial freedom through disciplined financial education. It equips readers with the knowledge and skills to make confident financial decisions, leading to financial independence.

This book emphasizes the importance of becoming financially educated as the cornerstone of financial well-being. It highlights the critical need for financial education in the rapidly evolving fintech landscape. It is aimed at undergraduate students, providing foundational skills to become financially sound.

The Present Publication is the 2nd Edition, authored by Prof. (Dr) Amit Kumar Singh and Dr Rohit Kumar Shrivastav, with the following noteworthy features:

• [Simple, Systematic & Comprehensive Explanation] The subject matter is presented in a simple, systematic method and a comprehensive explanation

• [Examples from the Real-life World] is included to ensure relevance for learners

• [Student-Oriented Book] This book has been developed keeping in mind the following factors:

o Interaction of the author/teacher with their students in the classroom

o Shaped by the authors'/teachers' experience of teaching the subject matter at different levels

o Reactions and responses of students have also been incorporated at different places in the book

The structure of this book is as follows:

• [Learning Outcomes] Each chapter begins with learning outcomes to give brief context about the content and what the readers will achieve after the successful completion of the chapter

• [Main Text] Various concepts and topics have been explained in simple and lucid language

• [Examples & Cases] are added to enhance readers understanding

• [Practice Questions] Each chapter provides a list of questions to test the readers' knowledge. Readers can answer these questions to review their learning

• [Activities] The benefit of learning finance concepts cannot be enjoyed unless applied to real-life situations. Thus, each chapter offers activities for readers to ensure learning by doing

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