Financial Planning & E.I.N.S.T.E.I.N (Albert Einstein)

I met one of my college friends a couple of days back. Our meeting lasted about 45 minutes. We covered almost all the hot topics.. Rahul G’s leave management, IT layoffs, PK success, Physics (his favorite subject since college days), Financial Planning (my favorite subject)…. 🙂

(My friend has done graduation in Chemical Engineering & works for a Software company. Physics has been his all time favorite subject)

He has been following my blog for quite sometime now. So, when I started discussing about Money management, he immediately asked for an Acronym, so that he can relate both Financial Planning and Physics to it. He wanted to link the important aspects of Financial Planning to it.

Physics…Financial Plan…Acronym…hmmm…I immediately got the below idea and shared this with him.

When he said Physics, I immediately remembered Albert Einsteininarguably one of the most brilliant men who’s ever lived.

E.I.N.S.T.E.I.N & Financial Planning aspects…. Let’s relate them..Einstein and financial planning

E : Emergency Fund – Create and maintain an Emergency (or) Contingency Fund. You can accumulate a fund which is around 3 to 6 times of your monthly expenses. Everyone has wants, needs and desires when it comes to spending money. Make sure you have atleast three months’ worth of emergency income available for the ‘NEEDS’. You can save this fund in Short-term Fixed deposits or Keep it in Sweep-in Accounts or just keep cash in hand (a portion of the fund). Avoid letting unexpected expenses or events lead you to financial ruin. Build your emergency fund.

I : Insure your Life – This should be your second step in creating simple and effective Financial Plan. You should have sufficient Life Insurance Coverage. It is not ‘how much premium’ you pay, but it is ‘how much Life insurance coverage’ (Sum Assured) you have which is more important. So, do you need to pay high premium to get sufficient coverage? Yes, if you opt for money-back or Endowment policy. No, If you opt for a good and affordable Term insurance Plan. (I may be repeating this the nth time on my blog..hmm..sorry.. but there are lot of people who still believe that “Buying Term insurance plan is a waste of money.”)

N : Non-Life Insurance Coverage – The third step is to identify your non-life insurance (General Insurance) requirements. These can be your motor / vehicle insurance, personal accident coverage, mortgage insurance, home insurance, mediclaim etc.,

S : Systematic Investment Plans – The fourth aspect of financial plan is to save and invest in Systematic Investment Plans periodically. These investments can be done in various avenues like Mutual Funds, Fixed Deposits, Equity, Bonds etc., But, before selecting the financial products, it is prudent to first identify and set realistic Financial Goals. As per your goal requirements, you have to choose various investment products with different risk profiles, to achieve your goals. These goals can be, Your Retirement Plan and accumulation goals like Kid’s Education goal (or) Kid’s marriage goal (or) Vacation planning etc., (Read my article onHow to create a Solid Investment Plan?“)

T : Tax Planning – While creating your investment plan, try to identify and invest in tax-efficient products. But, kindly note that Tax saving should not be the sole criteria for choosing the investments.

E : Estate Planning – This is also known as ‘wealth distribution or transfer.’ Let us assume that you have created a good protection plan and good wealth accumulation strategies. But, what is the use of building assets and buying insurance policies if you have not mentioned proper nominations on your investments. Estate Planning is the process of making a plan in advance and naming whom you want to receive the things you own after you die. Write you Will.

I : Inflation – Creating a Financial Plan is dependent on few assumptions. One of the most important assumptions that we have to make to create a good Financial Plan is ‘Inflation.’ In simple terms, it can be defined as either a rise in prices or a fall in the value of money. You need to be aware of prevailing ‘inflation’ rates. The Retirement corpus, Kids education goal etc., are totally dependent on the assumption of certain rate of Inflation. You have to review and modify your Financial plan (if required) based on the prevailing inflation trends in the Economy. (Sometimes we may see deflation too)

N : No of Years / Compounding Periods – To make an effective Financial Plan, it is of utmost importance to understand the importance of Time Value of Money. Components of Time value of Money formulas are investment amount (payment), Future Value / Present Value, Rate of Interest and No of Years (N). Out of all the components, N is damn important. The earlier you start investing, the more you can benefit from compounding. Also, align your investment planning according to the time-frame of your goals. For example, if you are planning for your Retirement which is 20 years from now, you should not be conservative and should not invest in Fixed Deposits alone. If you do so, inflation will eat away all your savings/investments. You need to take risk depending on the investment time-frame of your goals.

“Compound Interest” is the most powerful force in the universe (or) man’s greatest invention. Compound interest is the eighth wonder of the worldAlbert Einstein

(Though these quotes are mentioned in many books / blogs, there is no evidence that he ever said such a thing. Whether he said this quote or not, it does not change the fact that ‘compound interest’ should be on the mind of anyone looking to build wealth over time)

When my friend started speaking about his favorite subject “Physics”, I immediately mentioned the above Einstein’s quotation….:)

If you are a ‘Do It Yourself’ investor, implement the above steps to create a simple and effective financial plan. Next time when you think of E.I.N.S.T.E.I.N, think about Financial Planning too and vice versa 🙂

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  • Deepa says:

    Hi srikanth
    I am planning to buy a term plan .(Its the result of suggestion from ur blog).Do i have to mention dependents while taking policy?I am the earning member of the family n I look after my parents (mother and father) and they become dependents?.My father gets sister is not earning.

    • Sreekanth Reddy says:

      Dear Deepa,
      If the insurance proposal (application) asks for it, you need to provide your dependents details.
      Based on the information you have provided here, they can be your dependents.

      • Deepa says:

        Thank u for your valuable answer.
        I have decided to go for LIC’s e term plan Let me know ur opinion.Is that ok based on claim settlement .Is it a necessary clause to have dependents while buying a term Insurance?

        • Sreekanth Reddy says:

          Dear Deepa,
          You may kindly go ahead with your decision.

          Kindly note that IRDA’s report does not provide claim settlement ratio data exclusive to Term insurance. It is a generic data which includes all types of life insurance products (Term, endowment, money-back etc.,). Kindly do not give that much importance to claim settlement data.

          Also, note that ‘as per the recent amendment to Section 45 of the Insurance Act, If your policy is 3 years old, no matter what happens, the life insurance company will not be able to deny the claims. So, your life insurance company has only 3 years in hand to reject the policy based on any mis-representation or mis-statement. Once 3 policy years are completed then the life insurance company has to settle the claims and can not reject them.’

          • Deepa says:

            Thank u srikanth .Is it possible to have more than nominee in lic e term.?Is it cumbersome to get lic e term ?how many days do they take to process the policy.

          • Sreekanth Reddy says:

            Dear Deepa,
            Yes, you can have multiple nominees.
            I don’t think it is cumbersome. Timeline I am not very sure, can get the policy in 1 to 2 months.

          • Deepa says:

            Thank you srikanth, for the details provided by you reg term insurance Could you please suggest the better term insurance policy?

          • Sreekanth Reddy says:

            Dear Deepa,
            You can buy a basic cover from any Life insurer of your choice. But, do disclose your personal and other details honestly and accurately.

          • deepa says:

            thank you srikanth for the details

  • Vinayak says:

    I am looking for HDFC super income as a retirement plan. I am 48 and looking for regular income post 60. Do you think its a good plan for returns. Plan says Guaranteed Base Income of 8% for 12 year payments, if so, this seems to be safer plan and if I get bonus its good. Would you suggest this is good if I need 20k monthly at the age of 60. If you suggest this is not good, which plan would be good for my requirements?

  • B. VENUGOPAL says:

    Dear Sreekanth,

    My brother is working in a medical company. He wants to retire voluntarily at the age of 50 and invest the lumpsum in LIC Jeevan Akshay annuity plan, for pension with the option of return of purchase price, (as his company doesnt give pension to him) at a guaranteed rate of 7%, as he does not like BANK FD, interest rates of which are subject to change frequently. I told him to go for a combination of products. Is it wise to lock his entire amount in JEEVAN AKSHAY?

    • Dear VENUGOPAL Ji,
      It depends on many factors : His financial profile/status, future financial goals, dependents profile, health condition, lifestyle, etc.,
      Even I would suggest him to go for combination of investment options based on his goals rather than locking the corpus in one option.
      Kindly note that the Annuity income is taxable as per the current tax laws.

  • Gopalakrishnan says:

    Am planning to make a investment in insurance schemes..
    Can u suggest which is best?
    I got a call from HDFC regarding super income plan? Is it good to invest in tat?

  • Sonu says:

    Hi Sreekanth,
    I have opted HDFC Super Income Plan ,policy commencement date is Feb2016. My age is 23years, currently no family responsibility.
    Premium 1.5L p.a
    Premium pay term : 8years
    Sum Assured on maturity: 885,784
    Policy term :16years.
    Payout Term : 8years.
    Its approx. 12.5% *8 = 100%* return
    I am not feeling confident about this plan.
    Can you please advice the best plan to go ahead?

  • PRAKASH says:

    Dear Sir,

    I have been following you blog diligently. The advice you give to the various queries is so easy to understand.

    I am 39 with two kids 9 years and 3 years. I have family medi-claim, life insurance, PPF account, all in place. i have a small business of wedding photography, payments are not steady.

    i am interested in investing 50,000 in mutual funds. But i am confused. should i invest lump sum or through SIP?
    and i want to invest in growth fund that builds up money for my daughter’s college fees (in 10 years), and also invest in a fund that will give me good dividends as well good returns ( in 5 years). Please advise which funds I should select. i want to invest in about 3 to 4 diverse funds but don’t understand how to select the funds.

    Thank you.

  • B. VENUGOPAL says:

    Dear Sreekanth,

    At the outset, my compliments to you as you are rendering very good service in financial matters. Wish you all the best.
    I am 52 and I invested in HDFC Super Income Plan for 10 years in Sept. 2014. (yearly Rs.1 lakh). I also paid renewal premium this year. So total premiums paid are two. But I can get Surrender value only after 3 years.
    After seeing your website, I want to discontinue.

    Now advise me whether (1) I should pay the 3 rd premium next year and surrender after giving 45 days notice or (2) stop paying the amount and make the policy lapsed.
    My agent says the scheme is modifed now and is beneficial to investors. Bonus accrued is Rs.18000/- +.
    Please Advise me

    • Dear VENUGOPAL,
      It is a money-back plan. Kindly get rid off it.
      Check with your agent as to what would be the surrender value after 3 policy premiums. Kindly understand the SV calculation, you may ask him to do the calculation
      in-front of you.
      Do you have any other life insurance policy?
      Term insurance Vs traditional plans (endowment / money-back)

      • B. VENUGOPAL says:


        SV in HDFC Life Super Income Plan is 30% of total premiums paid. I have Term insurance for Rs.10 lakhs with SBI Life (Shield). Premium per year is Rs.7,646/- and health insurance of Rs.5 lakhs with annual premium of Rs.12,500 from L&T Insurance (Medisure Classic Insurance).

        • Dear VENUGOPAL,
          Suggest you to buy new term plan and enhance your sum assured (based on your income & financial obligations). After that you may let the policy lapse.
          Let me know more about your other financial goals??

          • B. VENUGOPAL says:

            Dear Sree,
            Here are my details. Age: 52. Took VR recently from a PSB.
            My investments: 1. PPF : Rs.5 lakhs
            2.Equity: Rs.7 lakhs
            3.Insurance: Life: Rs.10 lakhs Health Ins: 5 lakhs (Family
            floater Rs.5 lakhs for wife and daughter)
            Hdfc Super incomePlan:Rs.7.5 lakhs
            (endowment policy to discontinue from next
            year. already mentioned earlier).
            4. MFs: Rs.10,000 p.m. from September 2015
            (Rs.2000 each in a. Birla top 100 fund, b.ICICI
            Focussed Bluechip, c. Franklin Templeton Prima
            Plus, d. Tata Balanced Fund and Rs.1000 each in
            a. Franklin Smaller companies fund and 2. Religare
            Invesco Small and Mid Cap Fund)
            5. One residential plot worth Rs.6 lakh.

            Pension per month: Rs.28,000/-. All loans were cleared. Living in own flat.

            Goals: 1.Only daughter’s education-now in B.Tech 2nd year-(PPF a/c for this
            2. Her marriage. (after 4 -5 years)
            3. Retirement Corpus.
            Want to join some job and pursue CFP in 2016.

            Kindly advise me whether investments are on right track or need some changes.
            Thanking you,

            B. VENUGOPAL

          • Dear VENUGOPAL,
            3 – You may buy a Personal Accident insurance plan.
            4 – May I know the investment horizon of your MF portfolio? Selected funds are good ones. Kindly do not buy any more funds.

            Kindly use our ‘retirement goal calculator‘ and arrive at avg approx amount that you have to save/invest.
            Also, suggest you to maintain atleast 6 months of your living expenses as EMERGENCY FUND in bank deposits or debt mutual funds.

          • B. VENUGOPAL says:

            I want to continue MF contribution for 4-5 years. As I am stopping HDFC Life Super Income plan contribution from next year, I hope it will be easier to save for 4-5 years.

            Thank you very much. I really have to appreciate your free service to help people like me without expecting anything, in these days of purely commercial world. All the best and may God shower his blessings always on you in your endeavour for spreading financial knowledge.

          • Dear VENUGOPAL,
            If your investment horizon (MFs) is around 5 years, you may reduce the SIP amounts of MID-cap funds & can consider investing more in balanced fund.
            Thank you so much for your kind words.
            Kindly share the articles with your friends too 🙂

  • Bikash Chandra Saha says:

    Sir , Hamara ek musical Institute ke liye Loan ki jorurot hai . Jahape regional , classical aur Tagore’s songs shikhana chatahu. Swami Vivekanandji ka shiksha aur vabona students ko saath share korunga . Kiu ki Swamiji hai mera Idol . Please mujhe help kijiye . My contact no. 09635161331.

  • Sangeetha says:

    Hi Sreekanth,

    I have recently invested on HDFC life Super Income Plan for 10year term of 50,000 premium p.a.
    And now i am in a dileama weather i have invested in a right plan or no.

    I have also invested in below

    1. SBILife – Saral Maha Anand – 15,000 p.a (5year completed paying premium)

    2. HDFC Life Sanchay 50,000 p.a (2yrs completed paying premium)

    My husband is a business man and i have a 2yr old daughter. My husband has already taken a child plan in HDFC last year.

    I am looking for steady flow of income in future.

    Could you please advise if the super income plan that i have choosen is good else suggested me anything good.


  • GSK says:

    Hi Srikanth,

    I purchased HDFC Life Super Income Plan on 17th nov ,primarily to declare tax saving and money back at frequent intervals.

    Premium 10k per month ( 1.2L )
    Premium pay term : 12 years
    Sum Assured : 12,33,333.
    Policy term :27 years.
    Payout Term : 15 years

    I am 35 years old and lone bread winner for my family.

    Please suggest if this Plan is Good or Bad.


  • Deepa says:

    Hi Sreekanth,
    Great Article….

    I want to sell my flat and have already booked a new flat.

    – Total profit after selling my flat would be around 35L. Long term capital gain would be around 10L.
    – Loan requirement for new flat would be around 30L. Agreement is due in a month or two.

    With this situation at hand, I have two options as below
    1. Invest Capital gain amount in new flat and reduce the home loan requirement
    2. Pay tax on capital gain and invest the amount for better returns (financial product such as stocks & mutual funds)

    My Goal is
    1. To invest the profit (@25L), such that it generates (monthly) cash flow for me

    Below are my questions:
    1. What option should I choose from above w.r.t. capital gain?

    2. Should I invest my total profit in new home and become loan free?
    I am in favor of taking home loan to avail home loan tax benefit. I am planning to buy SBI Maxgain home loan for @30L.
    please advise which is the right approach.

    3. From this investment, how I can generate a cash flow for every month/quarter with good returns?

    4. How can I invest this money for my retirement?

    I am now 33 and my annual income is @15L now.

    Please let me know if you need any other information.

    Thanks and Regards,

    • Dear Deepa,
      If total profit from the transaction is Rs 35 lakh then how come Capital gain is around Rs 10 L?
      Why do you require monthly cash flow? Which one do your prefer – Long term wealth accumulation or monthly cash flow? Are you going to re-invest the monthly cash inflows in any other investments? or is it for consumption?

      Kindly read my articles;
      Retirement planning made easy
      The 6 most common Personal Finance Mistakes.

      • Deepa says:

        Hi Shreekanth,
        Thank you for your response.
        Let me first give more details and my understanding on your 1st question,

        I had purchased a flat in March 2009 for Rs.22.5 L (agreement cost). Now I am planning to sell it at @55L. I need to pay
        society NOC charges = 25k,
        Brokerage = 50k and
        running home loan balance = @17.25 L.
        So my total earnings = 37 L.
        Now to calculate long term capital gain, (CII taken from website)
        inflation index for 2015-16 = 1081 and for 2008-09 = 582.
        Indexed cost of flat = 1081/582 * 2250000 = 41.8 L

        So total profit/capital gain = 54 L-41.8 L = 12.2 L

        Now Tax on long term capital gain = 20% of 12.2 = 2.44 L

        Is my understanding is correct for long term capital gain and tax applicable?
        If I am wrong, Kindly correct me.

        for your 2nd question,
        I am planning to wealth accumulation as well as some kind of cash flow bcos now adays jobs are not secure and there should be some kind of earnings other than salary. As of now I am doing a job and I can reinvest monthly/yearly cash inflows coming from investment to other investment for good returns.

        Awaiting for your views on this.

        Thanks and Regards,

        • Dear Deepa,
          From where did that Rs 37Lakh come from? Selling price is Rs 54 or 55 Lakh?

          Kindly go through this article..

          You may use the calculator available in this article..

          2nd Point – Anyways you are planning to re-invest the periodic cash flows right? So, where would you like to invest these monies?
          What you can consider is , you can have two portfolios one long-term and another one conservative portfolio. Consider investing in Equity funds for long-term wealth accumulation and also a small portion of your savings in Balanced + Aggressive MIPs.

          • Deepa says:

            Hi Sreekanth,
            Thank you so much for your suggestions and advice about my query. I will go through all the links above mentioned by you and get back to you if any doubt.

            In my above reply I have already mentioned all the details about the flat sell transactions after paying bank loan, society NOC charges and brokerage from the selling price. i.e.
            Sell price = 55 L
            Bank loan = 17.25L
            Society NOC charges = 25k
            Brokerage = 50k
            Total money left = 55L-17.25L-25k-50k = 37L

            Hope you clear about 37L .
            I would like you please check the details about the transaction and deductions I have considered above and correct me in case I am wrong in calculation of long term capital gain calculation here.

            Awaiting for your reply.

            Thanks and Regards,

  • Reema says:

    Great article. The pointers are very practical and one can easily relate to them. I believe its necessary to prioritize and then look for a policy or investment suiting you. I have recently bought tata aia life’s money back Insurance plan, this plan gives you the flexibility to choose from various term options to meet your financial commitments with the advantage of paying for only half the term.

  • Rachel says:


    I am a first time investor. I have made the following investments – 1) HDFC SL CREST – Rs. 50,000 annually
    2) HDFC LIFE SUPER INCOME PLAN – Rs. 51,500 annually
    Further I am planning to deposit –
    – PPF – Rs. 30,000 per annum
    – Mutual Fund – Reliance Tax Saver Fund – Rs. 10,000 lumpsum
    HDFC Balanced Fund – Rs. 10,000 lumpsum

    This is my planning for investment requirement of Rs. 1.5 lakh. I have two children ages 8 and 3. Please advice on the correct investment tools.


    • Dear Rachel,
      1 – Kindly provide the policy commencement date. What is rate of return till date?
      2 – Kindly provide the policy commencement date
      Investments in PPF & ELSS Funds are good choices.

      Are you the bread winner of your family? Plz provide dependent details and about your other financial goal(s).

      • Rachel says:


        Thanks for the response.

        1)HDFC SL CREST policy commencement date is October 2013, with premium to be paid upto 2017. Sum assured on maturity in 2023 is Rs. 5 lakhs.

        2) HDFC Super Income Plan policy commencement date is November 2014, with premium payment to be done for 8 years. Sum assured on maturity (2030) is Rs. 3 lakhs and payout from the 9th – 16th years will be Rs. 37,800. I am unhappy with this plan.

        No, I am not the bread winner, my husband has a business of photography which gives him good earning for us to lead a comfortable life, but his payments are never timely. This leaves him in a tight spot financially.

        We live with my in-laws. Our monthly family budget is Rs. 17000 approximately.
        I have two children- a daughter 8 years and a son 2 years old.

        My idea is that since I have a steady income, I can plan systematically for my family’s needs and for my husband’s and my retirement.

        Will this planning take me closer to my goal ? –
        – PPF – Rs. 30,000 per annum
        – Mutual Fund – Reliance Tax Saver Fund – Rs. 10,000 lumpsum
        HDFC Balanced Fund – Rs. 10,000 lumpsum

        Kindly tell me if I need to rework my invesment plan.


  • Rachel says:

    A simple yet memorable acronym…


    I Like IT Very MUCH!

  • shobha says:

    Good One!

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