Contact us

To Buy: 1800-258-5899 (9:30 AM to 6:30 PM)


For Existing Policy: 1800-103-0003/ 1800-180-0003/ 1800-891-0003



Locate Branch



Search Button

5 Financial Planning Rules for First-time Earners

dateKnowledge Centre Team dateJune 14, 2021 views112 Views
Financial Planning Rules | Financing and Budgeting

“Strategy without tactics is the slowest route to victory; Tactics without strategy is the noise before defeat”
 - Sun Tzu

“Saving for a rainy day” is an age-old idiom used to underline reserving money for a time of unforeseen difficulties marred with financial challenges. Having a contingency fund helps overcome temporary setbacks during “rainy days” and bounce back to normalcy. That’s just one of the various reasons you should have a financial plan. Contingency funds have to be highly liquid so that you can encash on them quickly to meet your urgent needs. Illiquid assets such as real estate may not help because disposing them off to get money in hand would take time. As a thumb rule, you should have money to manage expenses for at least 6-8 months. This will give you breathing time to plan out your next steps.

Contingency planning is only one part of overall financial planning that should also cover lifestyle goals, retirement forecasts, healthcare costs, children’s education, and financial security for the family in case of death or disability of the income earner. An impactful financial plan should generate wealth in the long term, improve your lifestyle and give you peace of mind.

Financial planning is not about setting aside some money each month into a savings account. Wealth creation is possible only when the investment not only beats inflation but also gives sizeable returns. Inflation is one of the biggest impediments to wealth creation and a robust, laser-focused investment plan is needed to ensure that the purchasing power of your money is not destroyed.

If you have just embarked on your professional journey and are seeing salary credits since very recently, you must think forward and start your financial planning. The following five (5) financial planning rules can help you navigate and chart out the best plan for yourself:

1. Define Your Goals with Money

Unless you define your goals, you will never know what to chase. Without a clear focus, you would end making random choices. If you are a 25-year-old married gentleman and wish to retire at 50, what percentage of your preretirement income would you need after retirement? Whereas opinions differ, you can safely presume a need for 80% of your pre-retirement income.

Learn how to check if your retirement corpus will be enough?

If you have or plan to have children, you must factor in education costs in your financial plan. Although childhood dreams keep evolving, you must closely observe your child’s aptitude and passion so that you can invest in specific child investment plans to support his/her education.

2. Learn About Taxes

Income, Investments, and Taxes go hand in hand. Every investment has 3 components

a. Invested Amount
b. Interest
c. Maturity Value

If the invested amount is deductible, from your taxable income, it can be said that the amount is Exempt (E) from tax. If the interest from the investment is taxable it is termed as Taxable (T). The amount received on maturity may be taxable (T) or exempt (E).

i. EEE: Insurance Plans, Unit Linked Insurance Plans (ULIPs), Equity Linked Savings Scheme (ELSS), and Public Provident Funds (PPFs) fall under this category. This is the best place to be in as all components of the investment are exempt from taxes.

ii. ETE: In this category, the interest is taxable whereas the invested amount is deductible from taxable income thus reducing the tax payable. Even the amount received on maturity is exempt from taxes.

The 5-year tax-saving Fixed Deposit (FD) offered by Scheduled Commercial Banks is the best example of tax exemption on investment and withdrawal.

iii. EET: The National Savings Certificate (NSC) exemplifies the Exempt-Exempt-Tax (EET) mechanism where only the maturity proceeds are taxed.

Needless to say, option (i) EEE is the best because of the opportunity to save taxes at every stage. Moreover, the investment opportunities and financial instruments are more in this category.

ULIPs for planning your retirement

3. Always Save

Saving is a journey, not a destination. Let this become a force of habit such that you never forget to save, and you save before you spend. Your formula should be Income-Saving=Expenses. Unless it is an emergency, do not compromise on your monthly saving. Thumb rules suggest a saving of at least 30% of your monthly income.

Here are 10 smart ways to save your salary every month.

4. Work on SMART Financial Goals

Define your Goal: What cannot be measure, cannot be monitored. Quantifying goals and periodically measuring progress is the most practical way to reach your target destination. SMART goals are Specific, Measurable, Attainable, Realistic, and Time-Bound (SMART).

Goals should not be generic especially when finances are involved. Makes sure you chart out a goal that is Specific, Measurable, Attainable, Realistic, and Time-Bound (SMART). An example of each is mentioned below for ease of understanding.

a. Specific: You have made a down payment for your new house. You have to pay the balance amount 20% of the balance amount after 2 years. Rest will be given by your bank as part of the home loan. This 20% works out to approximately Rs. 10 lakhs.

b. Measurable: If you are planning for retirement, you must ensure you get at least 80% of your current income as cash flow then (in present value) from your retirement corpus. Ergo, if your current income, is Rs.1lakh/month, and you aspire to retire at the end of the next 20 years, your kitty should have at 250 times your current monthly income i.e., INR 2.5 Crores. Progress is now clearly measurable

c. Attainable: If your current net worth is less than INR 1Crore but you aspire to hit INR 1000Crores net worth in the next 12 months, it looks a tad impossible. Your goals must always be attainable else those will remain as daydreams which cannot be reached in practice.

d. Realistic: You wish to start your venture somewhere in the Caribbean Islands within the next 2 years. You are a qualified Chartered Accountant with a stable job in India. You have started earning about 2 years ago and will be married soon. Although flying off to the Caribbean is not impossible, it seems to be unrealistic unless you want to risk and sacrifice everything you have in hand.

e. Time-Bound: Goals cannot have unlimited time to attain. You will lose sight and interest when there is no time limit because you know time can be relaxed. It is best to define a timeline when you define a goal.

5. Automate Your Savings to Investment Conversion Process

The key to automating your savings to the investment process is having a defined allocation process. You must be clear where your money goes first. If you are 25, invest a larger proportion into equities. Invest in portfolios managed by credible fund managers. You should adjust your investment portfolio for the Post-COVID world, so that you are prepared for any contingency that follows. This will ensure your money works harder than you and grows by taking advantage of the bull run. The secret sauce-find the right investment plans such as ULIPs offered by credible investment or insurance companies.

Related Articles

Browse by Categories

Get a Call Back

Do you want us to call back Please fill the form below

Annual Income (In Lacs)

Our Products

TERM Insurance PLAN

TERM Insurance PLAN

Whole life cover option available

Increase your life cover with changing life stages

Return of premium & in-built protection options

Multiple premium payment options

Avail tax benefits on premiums paid as per tax laws


Unit Linked Insurance Plan

8 funds and 4 portfolio strategies to invest

Loyalty additions and wealth booster

Return of Mortality Charge is available on Maturity under all three cover Options

Flexibility of switching between the fund options to take benefits of market movements or change in risk preference

Pos Easy Bima Plan

Top Benefits

Hassle free

Get double life cover in case of accidental death

Choice of flexible premium payment and policy term

Avail tax benefit on premium paid

Frequently Asked Questions (FAQs) for Life Insurance

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age:It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chances of contracting diseases is low. Young people also opt for policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender:The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits:The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term:Policy terms are also taken into consideration by insurers while deciding the premium amount. Policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation:The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physicianâ s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence. There are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: An insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the policy, the insurance companies generally pay 80% of the total premiums paid.

Buying life insurance online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. Online insurance policies also offer higher benefits. Customers should, however, buy online policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one policy to increase the cover or avoid claim rejection. In case of multiple policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In the case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy life insurance, the insurance company asks for the nominee details. Only the person named as the nominee in the policy can cash out a life insurance policy in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in the case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term. The family receives the death benefit. In the case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment options are chosen the policy works as a source of regular income.

It is a popular misconception that life insurance is only for accidental deaths. A term life insurance plan like iSelect also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy life insurance in your early 20s because it’s is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy life insurance at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

Call BackCall Back Pay PremiumPay Premium