Financial Planning: Start early for a better future
About Financial Planning
I am Mr. Salve, I had a food grain shop in small village in Maharashtra. I have a son studying in an engineering college at a nearby city. The college is not very good as compared to other colleges in our country. My son worked hard to get admission in a good college in the city and he got good marks too. When we went to that college, the annual fees for the college were twice as much as my budget and I also had to look out for his living expenses in the same city. I earn an income which is sufficient to run my day to day family expenses and extra in some seasons which till the date I had put in my saving accounts for the education of my son.
Today, as I said, I suffered problems while taking admission in a good college because I kept my money in idle savings instead of investing it. I could have fulfilled my son’s dream. All his hard work was of no value, only because of my lack of knowledge and not doing financial planning of my savings.
Nowadays spending is greater than earnings and value of money is decreasing day by day. We have seen that the basic needs are also getting much costlier. Children who get Rs100 as pocket money are now not happy with even Rs1000.
People, who are saving money for future planning, are also not sure if that much money will be sufficient to achieve their goals like buying house, son’s or daughter’s marriage, foreign tour once in a year or two etc.
Even today we see that while a large number of people are very conscious about their physical health, they fail miserably in their financial health due to non-planning of financial health. They have personal counselors and trainers for their physical health; some of them regularly go for preventive health checkups. But the same class of people are making financial decisions on their own. They don't think of appointing a financial planner or an advisor and end up with some serious mistakes and huge losses. It is natural since one can see, sense and feel physical health but not financial health. It is so far ahead in the future, that people fail to take note of this in time, and when they need it and get serious about this, the time has already passed.
When someone feels unwell, very often they will go to a doctor, physician or any other medical practitioner for a checkup or consultation and take medicines as per the medical practitioner's prescription. But the approach is quite different when it comes to financial health. Oddly, people seem to think that while investing for their future, there is no need of a consultant or an advisor as they know better and can invest directly instead of approaching any consultant. They invest some in assets that they've heard of which someone else has already made a lot of money from.
Financial industry veterans also state that, to some extent, financial product distributors are also responsible for this tendency. There are so many financial products available in the market to make financial health strong in the future, but this distributor only gives what the client asks for. It is like a pharmacy where many medicines are available over the counter for same disease, and customers ask for medicines without any prescription from a qualified practitioner.
Talking about financial planners, what a financial planner does is study a person's future financial requirement, weigh risk taking capabilities of client and then prescribe the products which are suitable.
Sometimes, people think financial plans are only needed in the future and they postpone the planning of their financial roadmap. Today’s young generation doesn't plan for their financial need in their early working age, and at the age of 50-55 they become aware of this and start to get worried about how to meet their goals at the time of requirement. People don’t foresee the needs and they start late and often very late. This needs to change. People need to understand this and start to plan early and follow it in a disciplined manner. This makes it easy to meet financial goals without much stress in the future.
Another problem is the lack of knowledge in the younger generation about time value of money. It has been observed that if someone asks them about their retirement corpus they'll say something like one crore. They are talking about the value of one crore as per today’s value of that sum of money and not in the future. They need to understand that if they are spending Rs30000-35000 to live a better life today, it will not be worth that much in the future. Even if we think that today's inflation rate of about 8% remains stable in the future, the value of Rs30000 will still be much less in the future. It will be ten times less than today. If one thinks that one crore is sufficient in retirement age, then consider that the value of one crore may be ten times lesser than today’s value i.e. you may need 10 crore. So one needs to put in place a financial plan (with the help of a planner or an advisor) for a 10 crore retirement corpus to live a healthy and stress free life in future.
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Equity Analyst and Investment Consultant - xxx