Is financial planning necessary for an Indian middle-class family to survive? It may surprise you that the middle class is the only class that worries about financial Planning. The upper and super-rich classes do not worry much because they have the financial resources to care for any untoward situation in life. But on the contrary, the lower class lives a hand-to-mouth existence. So, financial planning is out of the question for this class because they do not know when and from where their subsequent meal will come. So, let us discuss what financial Planning means for a middle-class family in India. In short, one can say it is a challenge.
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Is financial Planning only about saving money for the future?
Many people say that financial planning is essential to save money for the future, but it is not so. Financial Planning is vital to take care of any financial crisis. For example, there could be a bereavement in the family. Maybe, the primary breadwinner could lose their life. Under such circumstances, what happens to the family?
So, an insurance policy could be helpful under such circumstances. The money can come in handy, enabling the family to make ends meet. So, investing in an insurance policy is financial Planning.
Financial Planning for higher education
Similarly, planning for your child’s higher education is financial Planning. You can argue that education loans enable students to pursue whichever courses they want. However, an education loan puts a massive burden on the students to start their career with a considerable handicap. By the time they clear the education loan, they become eligible for a home loan, personal loan, and credit card. If they do not have a financial plan, it does not take long to enter a debt trap that could lead to a debt consolidation program. So, financial planning is essential from the time the child is born. You have various investment schemes that allow you to save money in small installments to cater to a massive responsibility like funding the child’s higher education.
Financial Planning for purchasing homes
In the olden days, people used to save money to buy houses. Today, things have changed, with almost all banks offering home loans at attractive interest rates. Availability of a home loan has become easy because banks provide loans up to 90% of a home’s value. However, the housing loan repayment is a long-term commitment that could even extend to 30 years. Moreover, the home loan installment itself consumes a significant chunk of the individual’s salary. So, financial planning is essential from an early stage to manage the home loan installment and juggle the disposable income on hand.
A rising challenge
India is gradually going the American way because you have young people starting their careers with a loan handicap. It keeps increasing as they keep taking more loans to meet their requirements. Yes, one can argue that their income also increases. However, the loan portfolio keeps building up on the other side, leaving very little for the individual to save for a financial crisis.
Saving for the retirement
Not everyone works in the government or PSUs, where pension facilities are available. A significant majority of the middle-class population has to save money to secure their life after retirement. Hence, it involves earmarking a sufficient portion of their income towards building a retirement corpus. You have excellent schemes from LIC and the government (Atal Pension Yojana) that allow you to save money for your retirement. However, the pension provided by these schemes is not sufficient to ensure a trouble-free retired life. Therefore, the individual has to look at other avenues like mutual funds, bank deposits, corporate deposits, chit funds, etc., to save money during their productive years.
All these activities require the individual to indulge in financial Planning.
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You can gauge from the above paragraphs that it could be challenging for the middle-class to manage all these loan liabilities, insurance commitments, contingency fund planning, etc., and still save money to run the household. Hence, you find most middle-class families running on two incomes. Under such circumstances, there is some relief for the primary breadwinner because they can rely on supplementary income to cater to their financial planning goals. Alternatively, the middle class can try different ways to make money online while juggling their present jobs. Thus, one can conclude that financial planning is the most massive challenge faced by a middle-class family in India.