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Is 'Lifestyle-Based Financial Planning' the Key to a Secure Future?

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Is 'Lifestyle-Based Financial Planning' the Key to a Secure Future?
December 17, 2024

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The investment risk of ULIP is borne by the policyholder.

Gone are the days when financial planning was just about saving a fixed percentage of income and sticking to rigid budgets. Today, your financial strategy can be as unique as your lifestyle. Imagine this: a young entrepreneur aspiring to travel the world versus a retired couple wanting to maintain a quiet, comfortable life. Would their financial needs ever align? Of course not!

This is where lifestyle-based financial planning shines. It’s an approach that tailors savings and investments to your unique aspirations and circumstances. Whether you live frugally in a town or dream of indulgence in a city, aligning your financial plan with your life goals can be a game-changer. Let’s explore why this approach might be the key to making your financial dreams a reality.

What is lifestyle-based financial planning

Lifestyle-based financial planning is all about customisation. It considers your current spending habits, income, and long-term goals to craft a strategy that reflects your way of life.

For instance, someone earning ₹75,000 monthly and spending ₹25,000 on essentials might allocate ₹15,000 for hobbies or travel. Meanwhile, a ₹10,000 insurance investment can support long-term goals like home-ownership or retirement. Lifestyle-based planning tailors such allocations, ensuring that personal aspirations align seamlessly with practical financial strategies.

Unlike traditional rules like the 50-30-20 budgeting model, this approach is dynamic. For instance, a young professional might prioritise wealth creation through investments like ULIPs (Unit Linked Insurance Plans), while someone nearing retirement may focus on steady savings plans.

It’s not a one-size-fits-all approach. Instead, it aligns financial decisions with personal circumstances. For example, a freelance photographer with irregular income might prefer flexibility, while a salaried corporate employee with a stable income might focus on disciplined savings.

This versatility makes lifestyle-based planning increasingly relevant in a world where individual preferences and life goals are so diverse.

Benefits of lifestyle-based financial planning

Imagine a financial plan designed just for you—one that evolves with your life’s twists and turns while keeping your dreams, big or small, firmly in focus. Lifestyle-based financial planning stands out for several reasons:

1. Personalisation at Its Best

No two people have identical financial needs. This approach allows you to tailor your plan to your unique priorities, whether it’s owning a luxury car, securing your child’s future, or retiring early.

  • For  goals like building a safety net, traditional savings plansor fixed deposits may work well.
  • Aspirational goals, such as funding international travel or a dream home, may benefit from ULIPs or endowment plans.
  • Children's plans can be ideal if your focus is securing your child's education or future well-being.

2. Flexibility for life’s twists and turns

Life is unpredictable. Marriage, career changes, or unexpected health concerns can shift your priorities. A lifestyle-based plan adapts seamlessly to these changes, ensuring your financial goals remain on track.

  • For instance, term insurance offers basic but robust coverage during uncertain times.
  • A whole life Insurance is a term policy that covers you for 99 years.
  • ULIPs, with their dual benefits of investment and insurance, can be adjusted to match evolving financial circumstances.

3. Alignment with goals

It’s not just about saving money—it’s about saving for your dreams. Whether you lean toward frugality or aspire to a more extravagant lifestyle, this approach ensures your financial plan reflects your vision.

  • Minimalistic savers might find fixed deposits or basic term insurance suitable for stability.
  • Aspirational planners can explore retirement-oriented savings plansor moneyback plans for long-term growth and security.

HDFC Life, for instance, offers a diverse range of savings and investment products, including endowment, moneyback, whole life, and children's plans, tailored to various life stages. These products empower you to align your financial strategy with your personal aspirations.

4 steps to a lifestyle-based financial plan

To create a financial plan that truly works for you, start by understanding your current lifestyle and long-term aspirations. By assessing your spending habits and defining clear goals, you can tailor investments that align with your unique needs and dreams.

Step 1: Assess your lifestyle needs

Start by analysing your spending patterns. Divide expenses into essentials—like rent or education—and discretionary items, such as dining out or luxury goods.

Think about your aspirations: Do you dream of a home by the beach or a simpler life surrounded by family? Understanding these desires will help shape your financial goals.

Step 2: Set clear financial goals

Define what you want to achieve in the short, mid, and long term. Some examples include the following.

  • Short-term: Building an emergency fund or saving for a gadget upgrade.
  • Mid-term: Funding higher education or a dream vacation.
  • Long-term: Buying property or retiring comfortably.

Ensure your goals are SMART—Specific, Measurable, Achievable, Relevant, and Time-bound.

Step 3: Choose investments that match your lifestyle

Pick financial products that align with your aspirations. The following will give you a good idea.

  • ULIPs: Ideal for blending investments with life insurance.
  • Endowment plans: Offer guaranteed returns for steady savers.
  • Retirement plans: Ensure long-term financial security.

For instance, a young couple planning for their child’s education can opt for child insurance plans that blend savings with security.

Step 4: Review and adjust regularly

Revisit your financial plan every 1-2 years or during major life changes. Goals evolve, and so should your strategy.

Insurance: The bedrock

Insurance is a cornerstone of any robust financial plan, providing essential protection for your loved ones in times of unforeseen circumstances.

Products like ULIPs and savings insurance plans offer dual benefits by combining wealth creation with life coverage. Whether you prefer a minimalist approach or aspire to a more extravagant lifestyle, there's an insurance plan that fits.

For minimalists, term insurance provides high coverage at affordable rates, while aspirational individuals may find ULIPs or endowment plans a better fit, offering both investment opportunities and security.

Take, for instance, a young professional who invests in a ULIP, balancing wealth creation with life protection—an intelligent decision that addresses both present and future needs.

How to mitigate potential drawbacks

While lifestyle-based financial planning offers many advantages, being aware of potential challenges is important.

Overestimating your needs, such as planning too ambitiously, can lead to financial strain. Similarly, ignoring life’s uncertainties—whether it's a sudden health issue or a job change—can derail even the most well-structured plans.

To avoid these pitfalls, it's crucial to maintain an emergency fund for unexpected expenses and strike a balance between your aspirational goals and realistic saving habits. By doing so, you can safeguard your financial future while still pursuing your dreams.

Conclusion

Lifestyle-based financial planning isn't just a strategy—it's the key to unlocking a future tailored to your unique aspirations.

By aligning your investments with your personal goals, you not only secure your financial well-being but also create a roadmap that evolves as you do. Whether you’re building a legacy or planning for a comfortable retirement, this approach adapts to your life’s ever-changing circumstances.

Assess your lifestyle, define your dreams, and explore customized solutions, such as those offered by HDFC Life, to bring your vision to life. With lifestyle-based planning, your financial plan doesn’t just support you—it empowers you to live your best life.

Take control today, and start building the future you deserve.

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ARN: ED/12/24/19053

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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