Smart Financial Planning with PSI Method: Protect, Save & Invest

2025-05-01

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You earn, you spend, and you enjoy your life. It is a good mantra to live by, but not when you do not strike a balance between earnings and spending. You are in your 20s. You got your first job. You see your friends buying branded items and cars, and you feel the urge to get something better. It is relatable, but not the right approach to life if you want to build a bright future. Are we not to enjoy our present life and only think about the future? Not at all. Enjoy your current years while also strengthening your future - that’s what financial planning is about.

When and what - these are the two important questions to find answers for. When do you spend and save, and on what? How do you decide? Tag along as we identify the correct approaches for financial planning and then discuss the right way to proceed based on different stages of life.

Key Takeaways

Financial planning is essential at every stage of life—start as soon as you begin earning.
PSI Approach: ‘Protect’ yourself with insurance and emergency funds, ‘Save’ consistently, and ‘Invest’ based on your risk tolerance and goals.
In your 20s (Formative years), focus on building basic financial habits with low-risk investments and health insurance.
From 25 to 60 years (Build phase), grow your savings, secure comprehensive insurance, and invest actively for wealth creation.
After 60 years (Resting period), prioritise health protection, maintain liquidity, and choose low-risk investments for steady returns.
Smart financial planning balances enjoying the present while securing the future.

PSI: An Effective Approach to Financial Planning

Start saving as soon as you start earning - a common financial advice, and it is a good one. But figuring out what to save and when is the critical question. PSI is an effective and easy-to-understand strategy, even for someone who has recently started thinking about financial planning and has no experience in it.

PSI stands for Protect, Save, and Invest. Here’s a more detailed insight into this approach:

Protect

The very first step is to protect yourself and the people depending on you by creating a safety net. It will safeguard you against financial troubles brought forth by unforeseen events. This step primarily includes getting insurance for yourself - health insurance, life insurance, property insurance, and so on. You can also focus on building a small emergency fund that can accommodate you for anywhere between three to six months in case of job loss, medical emergencies, or any other financial stress. Once you are financially protected against the odds, you can confidently move to the next step in your financial planning.

Save

You know you have funds for emergencies, and that means you are now free to start your saving journey. At this point, a thorough budget is in order. You make a total of all your expenses and tally it against your total income to identify the amount you are left with. Remember, the expenses also include the amount you spend towards anything you need for your financial protection, as we discussed in the previous section. The next ideal step is setting goals - What are you saving the money for? It can be for further education, buying your home, buying your dream car, getting married, or any other reason. Pick your investment instruments wisely, and start saving. Setting up an automatic monthly transfer towards savings is an easy way to manage the money and also build financial discipline.

Invest

Savings and investments are not to be confused. The latter is aimed at reaping higher returns on your capital. You can invest with short-term goals, but it is essential for long-term financial goals like wealth accumulation and retirement funds. This is where the concept of risk tolerance also comes into play. Investments made in high-return instruments often carry risk factors, which include the potential loss of the principal amount.

Begin securing your future

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Financial Planning: The Three Stages of Life

Let’s divide the years into three categories and see how you are to implement the PSI approach in each of them to best plan your finances:

Formative: 25 Years

You are at the beginning of your career. This phase of your life can be used to establish a strong financial foundation for the rest of your life. Financial education is very important during this time. Obviously, you will have to research and learn more about finance as you grow, but during the formative phase, get the basics clear.

Protect: Get yourself health insurance, at a minimum. You may not need more extensive insurance or may not be able to do so due to limited funds, but that’s okay.
Save: Opening a savings account is compulsory. Cultivating a financial discipline of saving from as early on as possible is certainly a good approach.
Invest: You don't have to dive deep into aggressive investments right away. Opt for low-risk investments to reduce the risk of losing capital, which can be limited during this phase. Additionally, you need to educate yourself about the different investment options and markets before you can take bigger leaps.

The Build: 25 Years to 60 Years

You know more, and you earn more - the build phase sees a more experienced version of oneself. You focus on growing your career and capital. Significant life events occur during this time.

Protect: Choose more comprehensive insurance coverage for yourself. It is also time to start safeguarding your assets and your dependents with insurance.
Save: Increase your savings for important goals during this time, from buying a house to getting married, to children’s education, to retirement.
Invest: You have learnt more about the market, evaluated your risk tolerance, and scoped the investment options. Based on your risk profile and financial literacy, you may consider investing in equity, mutual funds, or other market-linked products. All said, you can be more active in investment during this time to ensure the desired capital growth. Regular monitoring of your investments, market trends, and overall finances is not just a suggestion but a must-do.

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The Resting Period: Above 60 Years

Here begins the golden period. You have retired and look forward to relaxing and enjoying your post-retirement life.

Protect: Keep updating your insurance, focusing on your health coverage.
Save: This is when you maintain a steady cash flow for your daily expenses and unexpected expenses. Make sure you have sufficient liquidity.
Invest: Aggressive investments may not be suitable at this phase. Move to more low-risk investments that can ensure steady returns. The goal here is to earn without risking capital loss.

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FAQs

As early as you can! The moment you start earning, you should also start planning how to spend and save. You need not make extensive investments during the very first years. But you can get on with your financial education and plan your short and long-term goals.

Once you retire, you will not have a steady income from your job or profession, so you should plan for your post-retirement expenses beforehand. Pension plans are a great example of creating a new source of income to pay for your expenses.

Every individual has a different risk tolerance. It also depends on your age and financial goals. Low-risk investments are better during the early 20s and the years nearing or after 60. The time between 25 and well before 60 is when experiments and calculated risks are more suited.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.