Every person requires financial planning
It’s not about being a financial whiz kid, but all about making sure that you meet your goals and dreams

One of the biggest misconceptions of people today is that they think financial planning is only for the rich and the high-income people (HNIs).

First, one must understand that financial planning isn’t just about “getting wealthy”. It’s about helping people at all levels of income pursue their short-term and long-term goals. It’s essential for anyone who wants to take control of their financial life, make informed money decisions and achieve financial independence. Some people live in the fallacy that just because they are successful they don’t need to plan or they know what planning is all about. At the other end of the spectrum, there are people who think they don’t have money to plan.

Every person, poor or wealthy, requires financial planning just as any poor or wealthy person requires medical treatment.

Every person and family needs to plan because:

There is a finite source of money that needs to be allocated for different needs, wants and requirements. Hence, a strong need for prudent cash-flow and debt management.

There is no social security system in India and one must plan properly for retirement, contingencies (including medical) and unforeseen events.

Discipline in financial matters is a must.

They must invest surplus cash-flows in line with their overall objectives and financial goals.

Financial planning is not about being a financial whiz kid, but all about making sure that you meet your goals and dreams. We plan most things in life, right from taking a vacation to which car to buy, but when it comes to financial planning, most of us take a reactive approach. It’s only when your cash-flows are in a mess, or you realise you have been taken for a ride or have suffered a loss do you value the need for financial planning.

In fact, a well-made financial plan can be as helpful, if not more, to those with lower incomes or those who have just started earning. It is the way to help you build wealth over time. Like all good things in life, even wealth creation takes its own sweet time. The sooner you begin; a bigger corpus can be created. Unfortunately, most want to create it in a short time or start too late.

Starting early, however small, is important. That’s because the power of compounding works best over long tenures and therefore rewards the early bird.

If you start at 39, and put Rs 10,000 per month in an investment that yields 12 per cent per annum, you will have Rs 1.12 crore by the age of 60 (over 21 years).

If you were to start a year later at 40, and invest the same Rs 10,000 per month at the same rate of return, you will have Rs 98.9 lakh by the age of 60. Just a loss of a year has reduced your corpus by Rs 13.8 lakh (over 10 times the money you invested in a single year that is, Rs 10,000x12 months = Rs 1.2 lakh).

And if the rate of return were 15 per cent, then the difference would be as much as Rs 25 lakh. A clear example that time creates money.


Financial coach

It’s very important to have the right financial coach (planner) to help you through your planning and build a bulletproof plan. One may think that one can try and construct his or her own financial plan with the help of the whole lot of DIY information. But the truth is most people fail to use it accurately. It’s just like hiring a trainer at a gym.

Yes it’s possible to figure some of this stuff out on your own, but a qualified financial coach will help you reach your goals faster and effectively. A financial coach is well versed with the market trends and provides a comparison of various available products. He coaches you to make prudent investment decisions. His goal is to keep you financially safe and secure and help you achieve your goals. A new investor may not be aware of the important factors like time horizon, risk profile, portfolio diversification that need to be considered while making a financial plan.

Your goals and investments need to be in perfect synchronisation to avoid any financial distress. Hence, a financial coach is necessary to make a financial plan, which is in line with the above factors.


Certified financial planner

Today, there are many self-acclaimed financial planners like financial distributors, agents and salesmen who generously use the term financial planning/wealth management as and when it pleases them. Investors often confuse them for financial planners. But one must not opt blindly for the brand. An investor should opt for an unbiased, competent and a certified financial planner.

A few points to keep in mind in selection of a certified financial planner is:

How detailed and comprehensive was the data gathering interview? A good financial planner should take 3-5 hours including social chat over 1-2 sessions to complete this data gathering process.

Second, look closely at how the planner discusses risks and returns with you? Does he promise the moon and tell you how good he is and that he has provided the highest returns. No good financial planner in his right mind will ever do so and that is the kind of person you should look at working with.

Third, don’t opt blindly for the brand because it is the advisor and not the bank that matters. Most relationship managers in banks are sales people – always on the lookout for selling more and more products to clients.

Finally, does the financial planner take you through estate planning matters, retirement planning, different offerings as might be suitable to you and any other issues? He might not deal directly in any of those things but most good planners will at least give you an overview of what you need and refer you to someone competent.

(The author is founder and chief happiness officer at HappynessFactory.in)