It is relatively easy to make money if you put your mind to it. What is difficult is keeping the money you earn, and even more difficult is making your money grow on its own and work for you when you need it to do so.
In the past two decades of working in banking and financial services industry, I have a strong observation that most people are not very focused on personal financial planning and wary about hiring or appointing a financial planner to help him/ her to do so.
In the name of financial planning for the future, most of the people in India hoard money in fixed deposits in banks and post offices, put some money in PPF (public provident fund) and buy one or two insurance policies.
For the younger lot, you may also find some money put into SIPs in mutual funds too. However irrespective of young or old, you are unlikely to get clarity on the reasons behind such choice of savings/ investments other than tax savings and growing money as objectives.
Questions on specific financial objectives, investment strategy, vehicles, time horizon, the quantum of money expected at maturity, etc. are likely to go unanswered.
All these require focused financial planning and a certified and experienced financial planner can help you plan your finances to ensure you meet your life goals seamlessly.
However choosing the right financial planner may prove to be challenging, unless you understand the importance of financial planning and ask them the right set of questions before contracting and trusting anyone with your hard-earned money.
In this article, our effort will be to give you the required insights on all these to help you make conscious decisions regarding your financial planning needs.
What is Financial Planning?
In a normal course of life from the time a person gets into his/ her first job till he/ she chooses to retire, the following are the financial goals and milestones in life when people generally require lump-sum money –
Wealth creation –
In the face of rising inflation, if people need to maintain or improve their standard-of-living they will have to build wealth over a period of time.
One will need money to buy luxuries/comforts of life ranging from the first car and also change it thereafter, vacations, own new home and associated things.
All these long term goals require careful financial planning and investments in mutual funds and equities to accumulate an adequate amount of wealth at different timelines.
Education of children –
Even professional undergraduate courses and higher education thereafter are already expensive today in India and across the world.
This makes it imperative for a parent to plan for the higher education of the child the moment it is born. One needs to take into account the current cost of education and inflation in the economy to calculate the quantum of money required when the child grows up.
To build the required corpus wealth by the time the child is 18 years old the parent would need to choose investment tools that will not only combat inflation but also untoward exigencies to ensure that the child’s education happens at any cost.
Parents who wish to plan a dream wedding for their children too need to plan in a similar manner to full-fill their wish, come what may.
Retirement planning of self –
Retirement per se, is no longer a set at 60 years of age. People are seen to retire even at 45 years and/ or even at 70 years of age depending on their wish, given the increased life expectancy across the globe.
All set and done, people get at least 25 to 35 years to plan for their golden years from the day they set foot in their work lives.
If proper financial planning is done at an early age, then they can start even with a small yet regular investment, in a long term investment vehicle to build a good retirement corpus by the time they retire.
Medical and other exigencies –
Given the uncertainties of life and growing lifestyle diseases, it becomes an absolute must for all to plan for their medical requirements/ exigencies very early in life to get a big medical coverage against a small premium.
All medical coverage tools are tax-efficient, thus tax benefits are enjoyed on the premium paid every year.
Tax- Savings –
Moreover with an increase in income, tax liabilities to grow. There are an array of tax-efficient savings and investment tools that not only help people save tax on their hard-earned money, but also support them in their long term wealth creation goals.
All of these expenses need to be carefully planned for in a step-by-step manner, in order to ensure all life goals stated above and more timely planned and accounted for, way in advance keeping in mind the financial capability and needs of the person.
This in short is referred to as financial planning.
Plan your finances today
Leaving financial planning and your financial responsibilities to chance or on other family members in the face of inflation and uncertainties of life might not prove to be a prudent choice.
Here’s a guide to plan finance for your family.
An educated and the matured decision is to act timely with responsibility and plan for your financial/ life goals based on your life stage and its needs without delay.
One must remember that procrastination seldom works with financial planning as time available to life goals is finite.
One must also remember the following points –
Inflation is not your friend –
You must have heard your elders say that everything was cheaper back in their hay days.
Yes, of course, they were; a movie ticket would cost INR 5 to 20 that today costs INR 500, a chocolate bar would be INR 5 to 10 at the most and today they cost INR 60 to 150 at least, A bus ticket was about 50 paisa that is about INR 8 to 10, groceries and other daily necessities.
So with the increase in income levels of the people, inflation or cost of living too has become dearer so with the same saving that made life seamless then, one would never meet even their basic expenses today.
Simply because, money is losing its purchasing power – the INR 10 that could buy you a bar of chocolate in your childhood would fail to purchase any of them today. You will need INR 150 to make the same purchase as the price has gone up by 15 times!
Similarly, if you save INR 150 in your bank today at a rate of say, 5% also, you will receive only INR 157.50 which will not be able to purchase your favorite chocolate 1 year down the line.
Emergency fund requirement –
As I have always said that the biggest ‘if’ is inbuilt in ‘l-IF-e’ itself. No one knows when uncertainties of life strike with death, disease or disability. All dreams crash when any of these strike life unaware.
Having spent a considerable number of years in the insurance industry, I have seen that many people shy away from buying medical insurance and term insurance because these two policies do not have any maturity benefits!
However, these same sets of people ensure that their cars and motorcycles have 100% insurance coverage on them to protect them from any damage caused by accidents. Knowing very well that your vehicle insurance has no maturity value – you still buy it to offset any damage that can be mitigated financially.
The same logic must be applied to human lives, as life is priceless.
Moreover, unwarranted job loss too can shake up your dreams and aspirations. The emergency fund made available from timely and judicious financial planning is required to ensure your expenses are taken care of even on rainy days.
Investments in debt instruments like fixed deposits and income funds may prove to be beneficial in meeting such needs.
Funding the Golden Years –
Progress in medical science has ensured we live long and healthy retired lives. This is indeed a blessing. People can enjoy their golden years with their loved ones, pursuing passions and hobbies, travelling the world and more.
However, an important consideration here is funding all of these expenses, not forgetting medical expenses that generally arise with old age.
Only timely and proper financial planning for retirement will ensure a steady and stable monthly income during the retirement years.
Download a FREE guide on financial planning
All that we have discussed till now clearly defines the need to appoint a financial planner to help you create a program and manage your personal finances to help you meet your long-term life goals.
Having said that, it is also to be noted that the market is flooded with financial planners; but choosing the right one who has the ‘best interest at heart’ is essential for your financial wellbeing and peace of mind.
This is because unlike lawyers and doctors who have a defined designation per law, the financial planners can carry various titles like – financial planners, financial planning officers, wealth managers, wealth advisors, financial service consultant, investment advisor, investment manager, among other designations.
Here are top reasons why you should hire a financial planner right now!
Top 5 Questions you can ask in 2021 to your Financial Planner
This makes it difficult to ascertain the right or most suitable financial planner for your needs. Asking the right set of questions is critical to meet your needs.
Here are 5 questions we feel are most relevant to for you to ask before making a choice about your financial planner.
1) How does the financial planner expect to be paid for his services? Is he disclosing it?
Mutual fund agents/ distributors are paid a commission by the fund house. It is calculated as a part of the invested amount, and on every new investment, you make in the same scheme.
The amount of commission can vary from fund house to fund house and from scheme to scheme as well. It can vary from –
- About 4.5% to 1% in ELSS
- About 0.5% to 2.5% in Equity Schemes to a low
- About 0.2%% to 0.8% in Debt Funds
Certified Financial Planners registered with SEBI provide service to their clients against a fee-only and are expected to act only in your interest. But one may not be able to vouch for that.
Thus on the very first meeting, you must check and clarify how his/ her payments are to be calculated and paid. In case if anyone says that it is a free service or hesitates to disclose details, it should raise an alarm with you. There is no free service anywhere.
Here’s where you should invest your money in 2021, recommended by top financial planners
2) What is his/ her specialisation and how long has he been in this profession?
Majority of the times it has been seen that the financial planner(s) is representing a specific company or fund house and all his products/ schemes they suggest are from a specified set of companies.
There will be others who are selling various products, but their technique is to ‘push-sell’ the products drawing comparison on how other customers have benefitted from such investments.
Neither are they able to answer your questions satisfactorily. These may not be the right persons for you.
Also ask them the kind of client base they cater to, in terms of at least their age and occupation and the number of years the financial planner is servicing these clients (someone with at least 4 to 5 years of experience should serve you good).
This will give you a fair idea about whether the financial planner will suit your profile.
3) Where is the focus: on your need or the product?
A good financial planner will always spend time to understand your financial needs – both short term and long term ones, along with your current financial situation and income sources.
He/ she should ask you about your dependants and the reasons behind your investment requirements. He/ she must also check about your risk appetite and probable reactions in face of loss due to market downturn.
He/ she is also likely to educate your instruments in case if they feel that it might be suitable for your long term needs.
Only then will they will be in a position to recommend suitable investments tools to meet your needs. They will also ensure that you have a diversified portfolio to ensure mitigate future loss if any.
However, any financial advisor/ planner who positions and pushes one specific product as a one-stop solution to many needs, should raise a flag with you and is unlikely to be the right one for you.
This is because it has been observed that these advisors push those products which earn them bigger commissions and/ or required to meet their assigned targets.
4) Promising high returns? – Be aware
Is your financial planner promising you a guaranteed return of 12 to 15% annually or even on the overall investment? If yes, this should raise an alarm for you.
No market-linked investments, ranging from stocks to mutual funds to ULIPs, guarantee returns such high returns. Even if they show you any printed document with returns; remember they are merely illustrations based on either past performance of the funds/ plans.
Generally, a 7 to 8% compounded annual returns are expected over the long term; rest are inflated returns to attract retail investors like us.
Even in the case of government/ sovereign bonds, the return/ rate of interest guaranteed on the bond is subject to various terms of conditions.
To ensure you ask and get clarity and satisfied with their answers before you choose to invest in such instruments.
5) Is your financial planner explaining and discussing the risks involved in an investment?
Most of the financial planners/ consultants talk about the bright side of the investments especially in terms of returns. However only a few make their clients aware of the risks involved in certain investments.
For example, unit-linked investment plans (ULIPs) are suitable for young people who have a 15 to 30 years time horizon to maturity at that will reap good returns because of the power of compounding.
However, for old and retired people in their 60s and 70s, ULIPs are not suitable at all, as mortality charges will be very high at these ages and secondly this is not the age to get exposed to market-related investments that expose this set of people to market volatility.
Moreover, there are investment planners who pursue old people in their 70s and 80s to propose insurance policies for their grandchildren or children – the latter being aware of such investments being made.
They do this because their lives are beyond insurable age and/ or they are likely to have old age health issues as well.
So to make an easy cut, they get the policies issued in the names of younger people in their families – not mentioning that the policies will lapse in case anything happens to the proposers.
Thus one must ask enough and more questions about risks involved in any investments an advisor proposes to them to clearly understand the pros and cons involved.
In case aged investors, if you think you need to involve a family member to understand the proposal(s) better, please do so to ensure no money is lost in the deal.
Never go by the level of knowledge, polished outlook and smooth-talking of your advisor.
Instead, focus on whether he/ she is thinking solely about your needs and interests when strategising and suggesting you various investment options.
It has been observed that financial planners sometimes suggest unregulated investment options like Alternate Investment Funds, Bitcoin to young affluent and progressive customers.
Be sure to read on your own and understand every detail of such products – given that they are very complex and risky investments to step into unless you are a millionaire and have spare money to get into such things.
It is never advisable to hurry investments in instruments like these.
The Koppr Edge: How can Koppr help you with your financial planning
We at Koppr are dedicated to serving our clients to understand their detailed needs with our specialised mechanism and plan their finances to help them achieve their financial goals. You may read the Financial Planning guide for your reference: https://www.koppr.in/financial-planning/
You can simply start your investing journey with Koppr by starting your own Financial Planning.
1) Step 1: Sign-in or Sign-Up your Koppr account with your own credentials:
2) Step 2: After you log in, you can see your investment portfolio
3) Step 3: There is a list of your Financial Goals for you to choose from. You can choose any of the listed financial goals like home, car, marriage, child planning, higher education, family financial support, vacation, paying off your existing outstanding debts, home improvement, emergency planning, etc. or even custom your own plan as per your requirements.
4) Step 4: Suppose you wish to buy a house, you need to enter the approximate value of your house now that you wish to buy. So, say you wish to buy a house which is now priced at INR 50 lakhs
5) Step 5: Then you need to answer the question: “When do you plan to buy the house?”
Say, you choose Apr-2023.
6) Step 6: Then, you need to enter how much loan you wish to take, in terms of %. So, suppose to wish to opt for a 60% loan
7) Step 7: The calculator simply calculates the amount of money you need in the mentioned timelines, which in our example is INR 22.05 lakhs in 2 years and 2 months
8) Step 8: It also specifies the amount of money you need to save on a monthly basis to achieve your dream home
9) Step 9: This can be added to your Financial Goals with “Create Goal”
10) Step 10: Likewise, you can add other goals as per your requirement and create your Financial Plan on the Koppr App.
11) Step 11: You can also like or unlink your current investments to your financial plan so that you can track the progress of the same.
Our mission is to provide you with the right tools and financial products and take care of your financial well-being.
Download the Koppr app and take care of your finances today!