Financial
Planning
In continuation of my earlier post, I
will try to focus on basic things of Financial Planning.
1.
What
is Financial Planning.
2.
What
is the Importance of Financial Planning.
3.
Why
is financial planning important in our life.
Let me start with a simple language
and you will never find me using some financial jargon in my writing. If I use
the financial jargon it could sound Greek to all . To start with financial
planning, what does it mean to you or everyone or to a layman. It is just a
PLAN to achieve your financial GOALs in life. The cash flow to achieve the
aspirations of life and not the DREAM. Now to make you understand the
difference between the Goals and Dream which needs to be clearly understood,
let me take an example. Suppose you are in need of a car after 5 years which is
around Ten Lakhs rupees. So you need to start your savings to buy a car which
will fulfill your need. But if you try to purchase an Aston Martin or
Lamborghini or BMW or Mercedes then you are running after your dreams.
Financial Planning is to achieve your Goals, which is to buy a descent car and
not to achieve your dream.
Financial Planning takes care of your
goals and aspirations and not dreams. So you have to be very clear about your
desire, want, wish, dream and Goals. Some common Goals of a Human Life
1.
Child
Education
2.
Daughter’s
Marriage,
3.
Buying
a Flat
4.
Buying
a Car
5.
Foreign
Tour
And most important is a descent
retirement corpus to get a regular income till the end of life which we generally call as Retirement
Planning.
As death is certain but the TIME is not certain, so that is
also an important factor in financial planning, which has to be taken into
consideration.
Remember in
a human life cycle, normally earning starts between 24 to 27 years of age and
ends between 55 to 60 years of age. In a good civil society, an average life
span in Indian Sub continent is approx 70-80 years of age. So your earning for
30 years has to be spent over a period of 50 years on an average.
In Short,
the overall management of your incoming cash flow of 30 years which has to be
spent over 50 years is called Financial Planning and of course without
compromising your existing lifestyle. The Financial Planning is required for
all irrespective of a businessman, Well or Poorly paid Salaried employees or
even far a highly paid MD of a company or an IT consultant. No one can ignore
the fact. Earlier a man start planning, better the Plan Works. Better to start
early than to be never….
So in short
I hope I was able to make everyone understand what is Financial Planning. There
are end number of examples of Financial Goals. But I have mentioned only few of
them. Financial Goals varies from person to person and changes from time to
time.
Why it is important? Now coming to the
point, the answer is not so simple and is very much important in human life.
Again let me try to make you understand with the help of a simple practical
example. Suppose you are trying to build your own Villa or a building. You
could buy the bricks, Stones chips mortars, rods and hire some labors and try
to build the house. Now just think what the mess will happen after the house is complete with your
own expertise. So to built the house or villa, you just need to make a proper
plan, which is done by a civil Engineer, who further makes a blue print before
the proper execution is done. So here the Goal is to build the house. To built
the house a proper blue print or a plan is required to give a good shape proper
strength to your house. Similarly to achieve your financial goals a proper blue
print is required. This is the simple reason why a financial planning and a
planner is required or it is your money and it is your Goal and it is you who
will try to achieve the Goals without any Black&White Plan.
Fact says,
nearly 98% individuals invest money in banks, post office and other instruments
without having any plan or just to earn some interest. The Goal should always
be linked with the instruments you invest in. Otherwise you will definitely
achieve your Goals but not in time like traveling from Kolkata to Mumbai in
flight or a Train or a Car or a Cart or even by walking. Destination will come
but not in time.
Another
example will make you clear the fact that you are saving your money for your
Child’s higher education at the age of eighteen years in a low yield instrument
with ZERO risk, which requires 10 Lakhs. But when the exact time comes you see
there is a short of 5 Lakhs. How ? These are the facts how it has happened and
Why it has happened. Answer is Simple. The time when you were thinking about 10
lakhs has actually exaggerated to 20 Lakhs due to inflation over the years and
your investment has not given the same mileage over and above the inflation.
Now Why you should do a Financial Plan from
a CFP? Its your teeth and you have
to take care. Its your health and you have to take care
of. And it is also your money so you have to take care of it. Fact is we know
how to take care of our teeth and health but not our money or wealth. If you
have money you can take care of your health and teeth but in case of financial
crisis no one can be of your help except borrowing. Borrowing is not a good
solution, rather it solves the problem temporarily but accelerates the future problems.
As your
Doctor knows your health well, similarly a CFP knows Wealth well. A wrong
diagnosis can kill you forever whereas a wrong future financial planning may
exterminate you and your family when you are alive. This can also be shared by
a live example. Just imagine a childless couple in your neighbor or within your
family has retired from a Government Service with a handsome amount of 9 Lakhs
after voluntary Retirement 10 years back. They have fully invested the money in
Post Office for recurring income which fetches rupees 7000 monthly. Ten years
back it was descent but now it is hand to mouth and unfortunately if they are
alive for more than 10 years then it will be just a MESS.
“If you save your money Properly, Money will save your Future
Properly”- Tonmoy Roy
To Be Continued……………………..
This is written only to increase the awareness of Financial
Literacy among the interested few. If you like my post, kindly click on LIKE
icon and if you want to spread the literacy please share the post. For any
questions or concerns please feel free to comment on the post.