What is Financial Planning?

What is Financial Planning?

For some peoples Financial Planning may simply mean “Cash Flow Planning”, for some it may be restricted to “Tax Planning”. Other may think that financial planning is about investments keeping mind the tax planning issue.

The simplest and yet the most popular definition of Financial Planning may be –

“Financial Planning is the process of meeting life goals through proper management of Finances.”

Life goals can include a buying home, saving for your child’s education or planning for retirement.

Every person have had their own Goals and Objectives, it could be purchase a new home, have a latest version car, like to provide higher education, their marriage, have a trip to Europe or East Asia, twice in a year like to visit South India, or East India, have a Farm house at retirement age, etc. The list could not be complete and exhausted. Every persons have their own dreams. But current responsibilities and financial strength could not permit for the same.

Today’s life is full of stress, work load is increasing, the inflation was cut the leverages on savings. Returns on investments are not matching with inflations.

While taking a decision to invest, normally a person approaches to Relation Managers of Insurance Company or Mutual Fund or Broking agencies and gets advice. No doubt that their steps towards these decisions should be appreciated, but it sounds only limited compass for those providing services, whereas other area are untouched, like tax savings products, Retirement needs, Investment risk, building of portfolio, Estate Planning.

Benefits of Financial Planning.

Financial Planning provides direction and meaning to Financial decisions. It allows the client to understand how each Financial decision they make affects other areas of their finances. By viewing each financial decision as pert of whole, the client can consider its short and long term effects on their life goals. The client also adapt more easily to life changes and feel more secure that their goals are on track.

Financial Planning can achieve the following for the clients

1.   Organize their finances

2.   Improve Cash flow

3.   Lower personal incomes taxes

4.   Plan for Retirement

5.   Plan for educational expenses

6.   Improve investment performance

7.   Lower investment risks

8.   Reduce insurance costs

9.   Implement various recommendations

The Financial Planning Process

The Financial Planning process consist of six steps that helps take a BIG picture and look at where the person stands financially. Using these six steps, one can work out what he is now, what he may need in the future and what he must do to reach his goals.

The Financial Planning Process

Establishing the Relationship

Data Gathering and Goal Setting

Identification of Financial Problems

Preparation of written alternatives and recommendations

Implementation of agreed recommendations

Review and Revision of the Plan

How it works for Me?

There are different groups of clients are availing Financial Planning services. Although the every person with his unique status and issues, are considered while preparing a comprehensive plan. Every plan was customized and client need based. The different age groups had their own risk tolerance levels, and broadly their responsibilities. While constructing the PLAN, assets are allocated as per the age, gender, marital status, education, household income and risk tolerance level. To achieve the goals and objectives client takes some risk, to get reasonable return. All recommendations are based on mutual understandings and agreed level only.

Three main areas focus by Financial Planner.

1 Insurance need and Risk protection

2 Investment Portfolio Creation

3 Retirement Planning

Insurance need and Risk protection

After data gathering data was analyzed, as per the risk carrying by bread owner and his exposure to liabilities, risk was diversified through proper risk cover insurance. There are different products are available in the market to protect you and your family from these risk, and at cheaper rate.

Protecting your family from any unseen risk and their exposure to unavoidable circumstances, proper transfer of risk is necessary. As a Financial Planner we take a proper care about it.

Investment Portfolio Creation

“Don’t put all eggs in one basket” sounds effective while taking a investment decisions. Most of the peoples know this term but may believe on only one product, they invest their amount in Bank FD or in Gold or in PPF/NSC/KVP.

Its good but what about growing….You saved …you have invested…but whether amount was Growing….?

Now banks are offering handsome interest on Fixed Deposits say 9% but are considering what is the inflation rate now…is that some around more than 8%, means your money was growing just by 1%. Are you aware about this fact ?

Remember while calculating all interest working keep mind what Income Tax rate was attracting on your interest.

As per the age and gender a person was taking care about his estate and investments. Like a person at age of 25 can be more aggressive than person at age of 55. A young person at 25 can take more risk and haves a more time horizon towards his investments, whereas a 55 years person was more worried about his principal and its time horizon.

Young person could invest in equity market or product, but middle age person more look at Debts instead of Equity market. Proper creation of Asset allocation adjusted with goals and Objectives is major concerns. We taking care about it.

Retirement Planning

A person started investing in early young age while earning a little amount for say 10 years could accumulate a amount was much more than middle age person starts to invest for double period with same interest rate.

Investor A					Investor B
Age	Year	Contribution	Year end		Age	Year	Contribution	Year end
25	1	5000	5600		25	1	0	0
26	2	5000	11872		26	2	0	0
27	3	5000	18897		27	3	0	0
28	4	5000	26764		28	4	0	0
29	5	5000	35575		29	5	0	0
30	6	5000	45445		30	6	0	0
31	7	5000	56498		31	7	0	0
32	8	5000	68878		32	8	0	0
33	9	5000	82744		33	9	0	0
34	10	5000	98272		34	10	0	0
35	11	0	110065		35	11	5000	5600
40	16	0	173188		40	16	5000	45445
45	21	0	305217		45	21	5000	115665
50	26	0	537898		50	26	5000	239416
55	31	0	947961		55	31	5000	457512
60	36	0	1670630		60	36	5000	841870
65	41	0	2944221		65	41	5000	1519239
Value At End			2944221		Value At End			1519239
Less Total Investment			50000		Less Total Investment			100000
Net Value			2894221		Net Value			1419239

In above scenario, assume interest rate was constant @ 12% and Investor A had keep amount till his age at 65.

It’s a compounding Interest power to multiply the Return on Investments. Although in market scenario, interest rate was not constant same and it becomes and fluctuating downwards and upwards.

Major Obstacles to retirement Planning

a.    Start late

b.    Invest too little

c.    Invest conservatively.

Early age investments make person to take risk for long horizon, whereas middle age person, may take higher risk but situation does not permit so. But at least a step to identify your goals and objectives and starts for financial planning.

What kind of financial services are you authorized to provide me and what kinds of financial product/s do those services relate to?

We can provide you with a tailored Statement of Account at your request and include advice based on your financial needs, lifestyle goals and objectives. Advice can be provided on following strategies and financial products.

Financial Strategies

·         Guidance on budgeting

·         Savings and wealth creation

Strategies

·         Investment planning

·         Superannuation planning

·         Pre-retirement planning

·         Retirement planning

·         Risk and Insurance analysis

·         Estate planning considerations

Financial Products

·         Cash management products

·         Direct fixed income securities

·         Retail and Wholesale PMS products

·         Life and General Insurance

Investment Schemes

·         Direct shares

·         Socially Responsible Investments

·         Hedge funds

·         Superannuation products

·         Retirement income streams

·         Personal and group Insurance

What information should I provide to receive personalized advice?

We will complete a Client Questionnaire with you, which will record your personal objectives, lifestyle goals, details of your current financial situation and any relevant information, so that you receive the most appropriate advice. You have the right to withhold private information, but this may compromise the effectiveness of your Statement of Advice.

You should read the warnings contained in the Client Questionnaire and Statement of Advice carefully before making any decision relating to a financial strategy or product.

How could I engage financial services ?

It is a contract between Consulting Firm and Client, with mutually accepted by both with binding terms and conditions about the data security, data gathering, supporting documents related to data, fee structure.

Client  have the right to terminate this contract without penalty at any time within five business days after the effective date of this contract. To effect termination you must notify Advisor in writing.

While engaging services, a letter of confirmation should be signed by both the entities and retained the same copy with both. A specimen letter was attached to this document for client’s reference.