Personal financial planning gives a clear picture of where you are today and where you want to be
Author : Vijay Dalmia/DNAh
Content :
Content :
Personal financial planning, in India, is relatively a newer concept. Even those who are aware of it are skeptical of the entire process. Therefore, people are reluctant to opt for personal financial planning.
We, as a part of the financial services industry, are solely responsible for creating this situation. As mostly, personal financial planning is misused as a tool for selling certain financial products.
Almost all financial services intermediaries, be it insurance advisors, mutual fund distributors, stock brokers and even some of the loan facilitators, present themselves as financial planners, thereby creating a lot of confusion in the minds of people about the whole concept.
Here are a few facts about the process of comprehensive personal financial planning, which will help to clear the confusion and to understand the concept better.
A certified financial planner, who is an expert and has been trained extensively, will help you in clarifying your present situation by collecting and assessing all relevant financial data.
He helps you to identify both, financial and personal goals and objectives, as well as clarify your financial and personal values and attitudes. He identifies financial problems that create barriers while achieving financial independence. He provides written recommendations and alternative solutions.
He will also assist you in either executing the recommendations, or in coordinating their execution with other professionals. He provides periodic reviews and revisions of your financial plan to ensure that the goals are achieved.
Your financial situation should be re-assessed at least once a year to account for changes in your life and current economic conditions.
A certified financial planner may be called your financial health doctor. As in the case of health, one does not take any chances and consults a doctor regularly, so is the case with your personal finances.
Comprehensive financial planning requires continuous monitoring and periodic reviews to ascertain that you achieve your goals and objectives. The goals may be buying a car, a home, a recreational property, providing for children’s higher education, their marriages, providing for your parents and for your own retirement.
It also helps you to stay ahead of inflation, by earning higher returns on your investments, saving taxes, pay off your mortgages and other debts.
It helps take care of your family’s financial crunch in case of any mishap and also helps to maintain your standard of living even after you retire.
Every financial and personal goal has a number attached to it. A certified financial planner helps you identify these numbers and recommends solutions to reach those numbers.
Another apprehension that people have about financial planning is that it may put undue burden on their current finances.
This is not true. In fact, it helps you to learn to invest and manage your money more wisely.
A true incidence comes to my mind, which will help in clearing if you have any apprehensions.
A client (32), with two young daughters, plans to retire at the age 60. He stays in a joint family with elderly parents to support and dreams of buying a bigger house and a car. Also, he has to provide for his daughters’ higher education and their marriages along with his own retirement. Currently, he has a good job, earning Rs 11.50 lakh per annum, with an expected appraisal of 20% annually. When he had an investible surplus of Rs 3.5 lakh, he approached for a comprehensive financial planning.
According to the plan, he was informed that he requires about Rs 9.5 crore over next 28 years, till his retirement, to achieve all his goals.
He was shocked, and his immediate reaction was, even if he started setting aside the entire annual income over the next 28 years, he won’t be able to reach this amount.
But, when informed that he needs to invest only about Rs 3.20 lakh from his current investible surplus, with an annual increment of 10% in this investment, he was equally surprised and relieved.
He was surprised because he had never thought that saving and investing regularly, even small amounts can create big wealth, over a period of time, and relieved because his current standard of living will remain the same.
In the above example, the investible surplus was arrived at after deducting all his household expenses, taxes, annual holiday expenses, other recreational expenses, current insurance premium and other relevant expenses from his annual income.
Another most common reason for not starting a personal financial plan is because, people in their early 20s feel that it is too early and people in their late 40s or early 50s feel that it is too late. This also is not true. It is never too early and never too late to start a personal financial plan.
To conclude, a comprehensive financial plan will make you take control of your finances. You will have a clearer picture of where you are today, where you want to be and how to get there.
We, as a part of the financial services industry, are solely responsible for creating this situation. As mostly, personal financial planning is misused as a tool for selling certain financial products.
Almost all financial services intermediaries, be it insurance advisors, mutual fund distributors, stock brokers and even some of the loan facilitators, present themselves as financial planners, thereby creating a lot of confusion in the minds of people about the whole concept.
Here are a few facts about the process of comprehensive personal financial planning, which will help to clear the confusion and to understand the concept better.
A certified financial planner, who is an expert and has been trained extensively, will help you in clarifying your present situation by collecting and assessing all relevant financial data.
He helps you to identify both, financial and personal goals and objectives, as well as clarify your financial and personal values and attitudes. He identifies financial problems that create barriers while achieving financial independence. He provides written recommendations and alternative solutions.
He will also assist you in either executing the recommendations, or in coordinating their execution with other professionals. He provides periodic reviews and revisions of your financial plan to ensure that the goals are achieved.
Your financial situation should be re-assessed at least once a year to account for changes in your life and current economic conditions.
A certified financial planner may be called your financial health doctor. As in the case of health, one does not take any chances and consults a doctor regularly, so is the case with your personal finances.
Comprehensive financial planning requires continuous monitoring and periodic reviews to ascertain that you achieve your goals and objectives. The goals may be buying a car, a home, a recreational property, providing for children’s higher education, their marriages, providing for your parents and for your own retirement.
It also helps you to stay ahead of inflation, by earning higher returns on your investments, saving taxes, pay off your mortgages and other debts.
It helps take care of your family’s financial crunch in case of any mishap and also helps to maintain your standard of living even after you retire.
Every financial and personal goal has a number attached to it. A certified financial planner helps you identify these numbers and recommends solutions to reach those numbers.
Another apprehension that people have about financial planning is that it may put undue burden on their current finances.
This is not true. In fact, it helps you to learn to invest and manage your money more wisely.
A true incidence comes to my mind, which will help in clearing if you have any apprehensions.
A client (32), with two young daughters, plans to retire at the age 60. He stays in a joint family with elderly parents to support and dreams of buying a bigger house and a car. Also, he has to provide for his daughters’ higher education and their marriages along with his own retirement. Currently, he has a good job, earning Rs 11.50 lakh per annum, with an expected appraisal of 20% annually. When he had an investible surplus of Rs 3.5 lakh, he approached for a comprehensive financial planning.
According to the plan, he was informed that he requires about Rs 9.5 crore over next 28 years, till his retirement, to achieve all his goals.
He was shocked, and his immediate reaction was, even if he started setting aside the entire annual income over the next 28 years, he won’t be able to reach this amount.
But, when informed that he needs to invest only about Rs 3.20 lakh from his current investible surplus, with an annual increment of 10% in this investment, he was equally surprised and relieved.
He was surprised because he had never thought that saving and investing regularly, even small amounts can create big wealth, over a period of time, and relieved because his current standard of living will remain the same.
In the above example, the investible surplus was arrived at after deducting all his household expenses, taxes, annual holiday expenses, other recreational expenses, current insurance premium and other relevant expenses from his annual income.
Another most common reason for not starting a personal financial plan is because, people in their early 20s feel that it is too early and people in their late 40s or early 50s feel that it is too late. This also is not true. It is never too early and never too late to start a personal financial plan.
To conclude, a comprehensive financial plan will make you take control of your finances. You will have a clearer picture of where you are today, where you want to be and how to get there.
The writer is a certified financial planner & full member of FPSB India and working as head, Dalmia Risk and Investment Management Services, Mumbai. FPSB India relies on its Members’ prudence, competence, and ethical standards to have submitted this write up in good faith in their personal respective capacities. The article and the views are those of the writer and do not represent those of FPSB India. Readers are advised to consult their professional financial planners for advice.
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