More often than not any surplus money left in savings bank account either gets spent on discretionary expenses or may be because of tiny amount, we do not give much attention to utilizing that surplus, left in savings bank account in a more efficient manner. As experts say, it is equally important for money to work for us as hard as we work to earn it. But investors have very little clue about finding an alternative to savings bank account to deploy that surplus.

Financial planners also emphasize on the importance of maintaining emergency funds. Securing your insurance portfolio and creating contingency fund are the two basic pillars of financial planning process. As any contingency fund is created for any unknown emergency, which we do not know when and how will strike, we can not commit that fund to any long term investment purpose. Leaving that money idle in savings bank account also does not serve any purpose.

So what exactly is the alternative to savings bank account, which can be as liquid and safe as bank account and yet prove more financially prudent ? The answer is liquid funds.

As the name suggests, this is the category of mutual funds, which offers highest level of safety and liquidity. The basic objective of liquid fund is to provide highest level of liquidity to investors so that entry and exit from this fund do not cost anything to investors.

Lets Try to Understand the Concept of Liquid Funds:
As individual investors we come across two scenarios at the end of every month. Either we end up having surplus money lying idle in bank account, which is left from monthly income after providing for all expenses, which is unintentional excess money or we consciously attempt to put aside or save some money to create contingency fund. In both the cases, if we leave this amount in bank account invariably we end up spending that amount on any discretionary expense or if we keep large amount idle in bank account that may not sound prudent financial decision. Sometimes you get lumpsum amount or unexpected largesse like winning a contest or selling any real estate or any other asset or receiving large sum of money in inheritance. It invariably takes few weeks to decide on how to deploy this large amount. Liquid funds can play an important role here. Liquid funds can work as an alternative to your bank account in all such cases.

Liquid funds invest in corporate deposits, inter bank call money market or any other debt instrument with less than 91 days maturity period. As it invests in very short term debt instruments, there is no interest rate risk involved.

Ease of Investing:

• As the name suggests, this category of funds are the most liquid in nature.
• Investors can enter or exit without any charges, as there is no entry and exit load.
• Redemption gets processed in 24 hours time.
• Better tax efficient returns.

Ease of Transactions:
As the basic objective of investing in this category of fund is parking additional savings, which may be required in any emergency. So ease of operation/transaction is another important factor for investors. With NJ Demat account platform you can hold units in demat format and transact online using multiple platforms of online transactions, investing through debit card as well as opt for call and transact facility. This allows investors error free, quick transactions where both investment and redemption can be done at the click of a button.

Liquid Funds/Money Market funds help you utilize your savings in a better way. With changing times it's time to look beyond traditional products as modern times require acceptance of new solutions to your old needs.

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All of us have big dreams like going on a annual foreign holiday, buying a large house in a posh locality, sending our child to the best school / college and retiring in comfort at the age of 50 and we work hard and save harder toachieve them. Irrespective of our financial status in life, certain basic goals like child's education and marriage, purchase of house and our own retirement are non-negotiable and unavoidable. The sooner we plan and save for these goals, the better is the utilization of the power of compounding in our favour.

For the salaried employee, the 15 years of his life starting from 35 years going up to 50 years is the best phase of his life as he is at the peak of his career and income. If we apply the 80/20 rule here, then 80% of his lifetime investments in done in this phase of his life. Therefore, he needs to be prudent while allocating his money and not go overboard on any particular investment.

Let us examine some of life's critical goals in order of importance:

PROTECTING YOUR LOVED ONES :
This is the single most important goal. As our lifestyles get more hectic and stressful, it is important for the earning member(s) of the family to be protected against any unfortunate events. Buying a term insurance plan is the best available option to protect your loved ones. Today, a Rs. 1 crore cover for a 30 year old non-smoking male for a 30 year term costs approx. Rs. 8,000 p.a. The same cover for a female will cost approx. Rs. 7,000 p.a.

PROTECTING YOUR HEALTH :
As countries get more developed and our cities more urbanized, people have developed sedentary lifestyles with greater rates of obesity and consume more processed foods, alcoholic beverages and tobacco. The result is lifestyle related diseases like Alzheimer's, cancer, diabetes, heart disease, stroke, depression etc. are on the increase and account for majority of deaths in metros and cities. While this has resulted in a range of medical institutions and professionals on call to help people with these diseases, the costs of availing these services is escalating on a daily basis and is on the verge of becoming unaffordable for an average middle class person. Therefore, buying a health insurance policy either on a individual or family basis is critical to cover the family against any future health related emergencies. Today, a Rs. 4 lacs health cover for a 30 year old married person covering spouse and child will cost approx. Rs. 7,000 – 9,000 p.a.

PROTECTING YOUR OLD AGE :
According to a recent study titled "The Future of Retirement" published by Bloomberg which covered 20 highly developed and rapidly developing nations, India has the highest percentage of men 60 years or older in the labour force at 55%. Similarly, India also has the highest percent of elderly living in households with their adult children at 82.8%. The second highest is China at 64%. India is also among the top 10 countries in terms of percentage of elderly living in poverty at 21.8%. Retirement planning is clearly the most overlooked and avoided subject in any conversation among 30 year old salaried individuals. But as responsible and mature individuals, we have to take ownership of the fact that one day our salaries will stop and we will have to depend on our investments to fund our daily expenses. The sooner we accept this fact and start planning for our retirement, the more peaceful and stress free will be our retired lives. The cost of delaying retirement planning is best explained in the following example:

Even though Rakesh and Rajesh invest more money than Rajeev, their final retirement corpus is significantly lesser compared to Rajeev. This is the benefit of starting early and allowing the power of compounding to work in your favour.

CHILD'S EDUCATION :
The greatest gift that a parent can give the child is good and quality education. It is one of the toughest goals to plan for due to the competitive environment and high costs involved. Planning for your child's education involves determining when the child will be ready for higher education which is usually at the age of 21 or 22 years, followed by estimating the cost of the higher education today and on the target date when the child is 21 years. Cost of higher education has been increasing at approx. 10% p.a. Once we know the future cost of higher education, we need to work backwards to calculate how much to save on a monthly / quarterly basis and and in what investment avenues. Equities is the preferred investment for goals where the time horizon is more than 5 years.

BUYING A HOUSE :
For the average salaried person, this is a big budget goal due to the high prices of houses pan India. Home loans help to bridge the gap between the person's current savings and the cost of the house. Ideally, a house should be bought in the early part of a person's career as it typically takes 15 – 20 years to pay off the home loan. It is important to create a corpus which is approx. 20% of the cost of the house as this is the down payment that has to be provided by the home buyer. The rest of the amount will be funded by the bank. Balanced and income funds can be good investment options for creating the corpus for the down payment.

We need to classify all our goals into 3 buckets, namely short term, medium term and long term. Investments made for short term goals need to be more liquid in nature and less volatile as compared to investments made for medium and long term goals. A ready reckoner is given below to help you plan your investments in a systematic manner:

Whatever be our goals or dreams in life, it is important that we write them down, classify them as either short, medium or long term and accordingly select the appropriate investment options to help fulfill those goals.

"A goal that is not planned is a wish; a dream that is not chased is a fantasy." - Dr. Steve Maraboli

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Ever wondered how much should you invest in equities? In what time will your money double? Most of our money related questions often have complex answers which are boring and beyond comprehension for most of us. Well, now you can take a break from the calculators and take a look at a few quick thumb rules, often used by financial planners /advisors, to answer our questions. These thumb rules are interesting, easy calculation tips which we can use in our daily lives. But we also have to be careful as the results are often approximate and may not be 'exact' answers we are looking for. It will be up to you and your financial planner /advisor to help you take the right wealth management decisions.

When Will Your Money Multiply? The Compounding Rules Of 72 And 114.
The Rule of 72 tells us in how much time will our money double given a rate of return or interest. Simply divide 72 with your annualised returns to arrive at the number of years. For eg., if the interest rate is 8%, then it will take approximately (72/8 = 9) nine years to double your money. Turn the corner and it can also help you know the required rate of return to double your money in a given time. For eg., if the time available is 6 years, the returns required to double the money will be (72/6 = 12) 12% yearly. Likewise, there is also a Rule of 114 where 114 is used in place of 72 to triple (3x) the money.

How Much Will My Money Worth In Future? The Rule Of 70.
Inflation is one important thing to keep in mind when planning for future. But calculating the effect of inflation is not easy for most of us. This rule can be an useful tool for predicting your future buying power. Simply divide 70 by the current inflation rate to find the approximate time your money will take to reduce to half its' present value. For eg., inflation of 7% will reduce the 'value' of your money to 'half' in (70/7 = 10) 10 years.

How Much Should You Invest In Equities? 100 Minus Your Age Rule.
One of the basic ideas while investing in equities is to reduce the exposure as you grow older. But, apart from age, there are also many other factors affecting your asset allocation which makes risk profiling an important exercise. For the rest of us, this rule easily gives an idea on the extent of equity exposure, considering the age. For eg., if your age is 40, your equity exposure should be at (100-40 = 60) 60%. The balance would be invested in debt and other safer asset classes. Note that this old rule is contested by many experts today who argue that 100 be replaced by 110 or 120 or even higher considering the need for wealth creation, longer life expectancy and low debt returns.

Can I Afford That New Car? The 20/4/10 Rule Of Buying Vehicle.
This rule is used especially at the time of buying vehicles or similar assets. The rule says that while getting a loan for a vehicle, you should first put down at least 20% as the down-payment, the loan term should not be for more than 4 years and that your total monthly transportation costs (including EMIs) should not be over 10% of your income. This rule can thus also help you know whether you can trully afford to buy the vehicle of your choice.

How Much Should I Withdraw To Keep My Principal Intact? The Four Percent Rule.
This rule is used very often in retirement planning where the idea is to arrive at a withdrawal figure every year that will keep the retirement kitty intact while you are not generating any other income. The rule says that we can withdraw 4% annually from the outstanding balance amount to keep the absolute value of the retirement kitty (or any principal) intact. While there are many faults and misses in this assumption, like the rate of return, inflation, life expectancy, etc., the underlying idea is not entirely lost. Some experts say that the actual figure should be less than 4%, preferably 3%. The lesser the figure the better it is as it can ensure you do not run out of your retirement kitty any time soon.

How Much Should I Earn After Retirement? The 80% Replacement Income Rule:
Many experts believe that we should aim for replacement of 80% of our income after retirement to live comfortably. This presumably takes care of the reduced expenses on one hand while maintaining the living standards on the other hand. This income would be generated from retirement kitty investments and/or through income earning activities. Some experts believe that this figure can be bit lower, say at 75%. Note that having a big retirement kitty would increasingly help in reducing the need for non-investment income after retirement.

Pay Yourself First Rule:
This is a simple yet very important rule used in financial planning, especially retirement planning. The rule requires us to save for our own future (read retirement) first before anything else. The idea is to make an automatic arrangement from your bank account every month so that, the money is auto-deducted first every month after your receive your cash inflow, like salary. The process of automatic routing is said to be like 'paying yourself first' since money is deducted before other expenses are incurred.

Other Common Rules:

• The 10% Savings Rule: Most experts believe that the savings rate should be a minimum of 10% of your gross household income. A better goal is to aim higher. Another popular rule is to start saving 10% for meeting basic needs, 15% for comfort and 20% for freedom when you are young.
• The 3 Month Emergency Fund Rule: The idea is to have at least 3 months and going up to 6 months, of living expenses as emergency fund in addition to your savings for other goals. This of course depends on the nature of our work, risks and possibilities of finding new source of income soon.
• The 6 Times Life Cover Rule: This rule simply says that your life insurance policy should be at least 6 times of your total household income. If the 6 times would seems inadequate, note that we are well advised to have a higher cover.
• The 20% Down-payment, Two Times Home Loan Rule: This rule says that while buying a home, we should put down 20% as down-payment and avoid taking a loan over 2 times of our total household income. If we cannot afford the 20% down-payment rule, it probably means that we cannot afford that home itself.
• 20 times Income Rule For Retirement Kitty: How much retirement kitty you will need is a big question. There are many calculations available but this simple rule says that it is 20x of your gross total income at the time of retirement.
• Pay Highest Interest Rate Debt first: This rule points out which loan has to be repaid on priority first – it is the one that carries the highest rate of interest. Usually, the order would be credit card first, then bank overdraft, personal loan, vehicle loan and lastly home loans.
• Don't Take An Education Loan More Than The Expected First Year Salary: With rising education costs, this one rule can help decide whether to pursue an education course on loan or not. Following this rule will help avoid the struggle to repay loan after the education is completed. Ever wondered how a wealthy person.

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It may be expected from the blogs at this place, regardless of the topic, that it’ll revolve around the financial aspect of life. But when it comes to the growth of kids, and their financial security, with sufficient experience and observation, you will figure that no matter how strongly you secure your kids’ future financial position, stability and growth only happens by developing requisite skills and understanding of the world around.

Therefore, I’ll start with essential financial measures you must take as a parent to ensure a safe financial journey for your kids, but will extend the text to include ways to ensure that your kid’s future is secure even without your money. First we start with the steps to provide for the minimum required financial security to your kids and any other dependents:

1. Life Insurance
Life insurance is the most basic of the tools, to start with once you have any dependent. Since for first 20 – 25 years of life your kids are going to be financially dependent on you, it is important that this dependency is safeguarded and provided for even if you are not there to provide for it. Your next question may be about how much is needed, so there is a detailed analysis of future requirements that can be done by your wealth manager/ financial planner.

In case you are yet to consult an advisor, and want some cover immediately, you may go for a term cover of 10 times of your annual income; i.e. if your income is Rs. 10,00,000 p.a. your life cover will be of Rs. 1 cr. for which annual premium can range from Rs. 9,600 to Rs. 15,000 depending on the insurer services.

2. Health/ Disability/ Critical Illness (C.I.) Insurance
Health insurance or disability insurance is more important than life insurance for you, as one must have a health insurance even if he/she does not have any dependents. Main reason being, disability or bad health may curtail your earning capacity and badly damage your long term financial scopes by digging into your existing savings.

When you have kids to look after as well, their health also becomes an important factor. Starting FY 2014-15 you can also get a deduction of Rs. 5000 on preventive health care expenses, but given the rising cost of medical expenses that may not be enough. The way out is to look for a health insurance policy that gives you both hospitalization cover and reimbursement for health checkup expenses.

A reasonable amount for individual health policy given the future level of costs is Rs. 500,000, but again if you can afford you may go for higher Sum Assured (S.A.). For Critical Illness, expenses may be even higher and thus usually at least 4 times of S.A. is recommended for C.I. policies of that of health cover. E.g. if you have a health cover of Rs. 5 Lakh you can go for a Rs. 20 Lakh C.I. cover.

3. Emergency Fund
Emergency Fund is that money, which fills the gap between insured costs and regular expenses, for example job loss, or any other financial emergency, not covered by any insurance policy. Also sometimes you may have to bear some amount of expenses out of your pocket before you can get the insurer to cover the costs. Emergency fund comes in handy in such situations.

Most of the money for emergency fund is kept in fairly liquid investments like, Super Saver accounts, easily accessible fixed deposits or Money Market Funds. The amount of emergency fund depends on your monthly expenses. Though, it’s better to let a qualified financial advisor give you this estimate after a thorough study, in general you may follow the rule of 4 – 6 months of expenses as emergency fund.

Another major benefit of emergency fund is that even when your financial situation becomes tight, your long term financial goals will not be harmed by sudden and temporary setback.

4. Regular Goal Based Saving
After you have completed the contingency planning, time is to pack your bags and start moving towards the long term goals with peace of mind. Again it’s recommended that you take assistance of an advisor to plan your goals thoroughly, but just in case you are not, this is how you go about them:

Step 1: Write all your goals.
Step 2: Put them in a priority order
Step 3: Estimate current cost of these goals
Step 4: Multiply this cost by the multiplier given in the table below, depending on the number of years to the goal:

So, for example, current total cost of your kid’s marriage can be Rs. 10,00,000, but his/her marriage is due in about 20 years from now, therefore approximate cost of it will be around Rs. 35 Lakh (10,00,000 x 3.5). Though, remember that this table only provides an approximation actual expenses may vary widely if there is high inflation.

Step 5: Determine the monthly saving required for the goal by dividing the future cost calculated above with the number of months available to that goal.

E.g. in the above example: Marriage expense comes out to be Rs. 35 Lakh, but it is 20 years or 240 (20 x 12) months away. Thus, if you save Rs. 35,00,000 ÷ 240 = Rs. 14,583 per month, you can achieve this goal.

Again, however, this kind of calculation does not provide for interest earned on saving so you may simply reduce the monthly investment amount to some extent.

Step 6: Start investing in the following manner:

Important Things to do Other Than Investment and Insurance
Now that, you have financially prepared yourself to tackle almost every need of your kid, you need to think ahead and prepare your child for the challenges of the future. Following steps can be taken to allow kids to develop their skills and understanding:

1. Confidence Building in Kids
You may have seen that, confidence in people define their financial success. Confidence itself on the other hand comes from certain external and internal factors, such as beliefs, values and small successes. The internal level of confidence may exist in kids but it also requires nurturing and external support to grow and become strong. This can be done by two very small acts:

1. Freedom to experiment: Teach kids how to handle failures, and learn from their mistakes, rectify them and try again.
2. Measure success: Success if measured simply in mind can be overrated or underrated, generating unreasonable emotional exhilaration or anxiety. Both are dangerous for long term success and confidence. Thus, teaching kids about measuring their successes on practical parameters is a good way to build their internal confidence and self-belief.

5. Help them identify issues and overcome obstacles in life In today’s world no one can claim to know everything or have seen everything, but we can always try to know what went wrong or what is being a roadblock in our success. With your experience of handling some of the issues you faced in your life you can help your kid to develop that intelligence and wisdom to look ahead and tackle small and big obstacles in their lives. Important thing is to develop that methodical thinking which divulges and explores the details rather than simply skimming the surface and getting emotionally bogged down by the issues.

The richest people in the world look for and build networks; everyone else looks for work. - Robert Kiyosaki

6. Making them financially literate
Financial awareness is another important aspect of life, you can look at it in the way that when you had been a kid only formula for money was to keep your expenses as low as possible and save money. But with time saving alone is not enough, knowing true nature of money and how it can be multiplied is also required. Moreover, this step sets up the right expectation in your kids’ mind about money.

7. Giving them exposure to face the world
Since, world is made up of lots and lots of people, it is important to know as many people as possible and know how to deal with them, in short ‘how the world works?’ Motivating your kids to participate in community projects, speak up their minds on issues even if they are among quite senior and serious people, will give them confidence and courage to hold their point and participate on the stage, rather than just sit among the audience and clap.

8. Helping Kids to work on their dreams
Finally, with all the internal qualities and confidence, the last straw that makes any one successful is his/her vision for life. Kids, you will find are good at developing and harboring their own very unique vision of their world, need is to help them shape it so that they can go out and live those dreams and be successful in the way they want to be successful. After all, each individual has a different definition of success, but the result for each is almost the same level of gratification and prosperity.