For many people, financial planning is something at which they are totally at sea. Terms such as debentures, blue chips, stock funds and bonds mean precious nothing to them. But financial planning is something which is absolutely essential for everybody. Friday meets some experts who attempt to demystify the world of finance while also suggesting plans for people in various walks of life
Most of us uncomplainingly slog like the proverbial ant. But when it comes to planning, investing and saving for the rainy day, we are like the proverbial grasshoppers basking in the happy sunshine of here and now. A modest fixed deposit at a nominal interest or an apartment for the twilight years, and we think we are secure. Most of us refuse to look at the 'big picture'.
Why is it that when it comes to number crunching, most of us go into the ostrich mode, preferring to ignore reality till it may be too late? Why is financial planning an anathema to many - something to be left to the experts? 'Why break your head with figures, I have set aside a sum for the future and that is all I need to know,' is how we all like to think.
However, there is much more to financial planning than this. It is a new way of looking at life - chalking out goals in life, prioritising needs and managing finances to be able to live life comfortably.
And, every moment your family grows, your priorities in life shift, your needs change. If it is a home and a car at one stage, it is kids' education, a comfortable retirement, a medical or other emergency at another stage. There are other eventualities, like caring for elderly parents, a sudden loss of job and periods when one is unemployed.
How can a small sum stashed away in a recurring or savings account be your saviour for all seasons? Well, you need to sort out your priorities, set realistic goals and achieve those with sound planning.
Anil... 'you need the right mix'. |
"Now, with more money, lifestyles have changed, life expectancy has gone up and with more money earned, one is left with investible surplus. That is why the issue of protecting that amount and helping it grow arises. Financial planning is not rocket science. It simply points out to a core fact: that you need to pay for your expenses all through life."
But when it comes to making our money work for us, these are the kind of stumbling blocks in our thinking we typically encounter:
Myth 1: Financial planning is for the oldies. I am only 25 years old. There's plenty of time to think about it.
Reality: The younger you begin, the better it is, because financial planning is a dynamic concept with the goals changing at every stage of your life.
Dina El Yacoubi, a senior financial consultant with Mondial Financial Services, explains: "At 22, if you aim for a capital pool of a million dollars, at the age of 60, all you need to put away is $307 annually. But, if you begin at 30, you would require to put away $760 annually.
Myth 2: Planning is for millionaires, I live from paycheck to paycheck. Where's the surplus?
Reality: Everyone needs to save, more so those who have to spread the goodness thinly. Planning is meant for those who are building wealth, not so much for those who are wealthy. Planning can make all the difference. It does not matter how much you put aside. What matters is getting started, because as the saying goes, grain-by-grain a loaf is made, stone by stone, a castle.
Myth 3: One of my wealthy grand aunts might leave me an inheritance, or I could get lucky at the sweepstakes.
Reality: Only one in 100 people are lucky with inheritances or windfalls. The rest have to work out strategies to compound their hard-earned cash into a windfall at the end of their working years.
Myth 4: Investments are a big gamble? What if I lose?
Reality: When money is invested, there are bound to be periods of rapid growth, sudden dips, slow rise or steady rise. But you need to look at the bigger picture, think in terms of long-term gains and discard the short-term perspective. If you hate taking risks, there are always investments that guarantee your principal amount.
Myth 5: My kids will take care of me.
Reality: That's great thinking but look at your old-age expenses - the cost of living, the inflation, your medical expenses... wouldn't it be a better option to plan wisely so that you may uphold your dignity as well as have the love and support of your children.
Why gamble on something that gives you empowerment? And this is where the financial advisors step in. As thinker-writer Stephen Covey said: "Begin with the end in mind." These friendly folks who have the technical wherewithal to be clued on to the big picture, have in their repertoire an investment panacea for all.
Know Your Client (KYC) is one of their golden rules with which they begin. It effectively means each client is given individual attention and a need-based tailor-made portfolio. They decide where you would need to put in what amount of money, and advise you on changes and shifts periodically, taking into account your growing needs and priorities.
That is precisely what a financial planner can accomplish for you - protect your finances, make it work harder for you, and turn it around creatively to provide future wealth. Left on your own, you would keep putting that off.
Friday spoke to representatives of three agencies to know the basics of financial planning.
Tips from the experts:
Dina El Yacoubi
Sr consultant with Mondial, offers a few golden rules
Dina... 'invest in a currency which is stable'. |
The power of re-compounding: The money that you invest today may be a small sum, but owing to the interest you earn on it, it is growing constantly. Like a virus, it feeds upon itself, multiplying at a steady rate. Instead of you working hard, your money is working hard for you. As a financial consultant, I would advise that leaving aside a buffer of six months' salary for any eventuality, all your funds must be wisely invested to yield the best results.
Take no currency risks: Invest in a currency which is stable in the market.
Diversify your portfolio: Do not put all your eggs in one basket. Ideally, 75 per cent of your portfolio should be in U.S.-managed bonds and equities (to avoid currency risks) and 25 per cent exposed to oth
