Need for Financial planning today!!

Accumulating money is very old concept but Financial Planning is relatively new concept. Our parents never did Financial Planning exercise from the professional financial planner. Our parents have been from the era when goals could be funded by Insurance. Saving is an old concept but Investing is newer concept. They had relatively more predictable financial life due to lesser health care expenses, cheaper education and assured pension. Now these things are no more there and Financial Uncertainties have grown manifold. Priorities have changed drastically. Necessities have become far more costlier and luxuries have become cheaper. Today, you will find frequent travelers in flights & going for foreign tours in middle class families also. This was not the case few years back.

We tend to spend lot more money on luxuries than ever before. Who knows if we are doing it at the cost of our core goals like child education & retirement corpus? Financial Planning ONLY has the answer to these questions. Educational and healthcare inflation has been very high in last decade and you can’t rely on a wish or belief that whatever you are accumulating is sufficient. You need a strong back up of calculations to justify that your corpus is going to be sufficient.

Financial products are far more complex and evolved and investor is confused about which product to select.

What is Financial planning anyway!!

Financial planning takes comprehensive view of your entire financial life. It takes care of protection required till you accumulate the corpus, Present net worth, required net worth, your life goals and retirement planning. It considers the cash flows like Income, expenses and debts. It incorporates assets and liabilities. Summarizing these and integrating with your life goals is a complex task and can only be done by a professional financial planner. However people don’t understand the importance, meaning and role of financial planning in their life. In first place, investors do not really understand what Financial Planning is.

Below given are few common myths about the Financial Planning (FP).

Financial Planning myth 1 :- Myth:- Financial Planning (FP) is maximization of wealth.

Fact – Investing is for maximization of wealth. FP is for Optimization of wealth. You are basically saving to fund your goals and not a part of mindless wealth creation with no objective to meet. Accumulating your wealth beyond your goals is extra work you are doing that is not necessary.

Financial Planning myth 2:- I will plan when I've sufficient money. 

Fact- Financial Planning is not just investing. It's Protection, Cash flows and Growth combined to meet your Financial goals at various stages of life. It's a rational combination of Present and Future finances.

Financial Planning myth 3:- Financial Planning (FP) is starting SIP of some comfortable amount.

Fact- FP involves listing of Goals, Knowing precisely it's Future value and linking investments to Goals. Standalone SIP for profits without knowing purpose is of no good use.

Financial Planning myth 4:- FP can be done by any MF distributor or an Insurance agent.

Fact- It's an art in itself. Protection and Investing are it's wheels. Comprehensive Financial Planning can only be done by Financial Planner and it needs software and lot of calculations. Check if adviser has that skill.

Financial Planning myth 5:-  I manage my stock portfolio hence can do my FP. My uncle is Fund manager at AMC. He will guide for FP.

Fact- FP is a different SKILL than stock fund Management. Planner has access to various asset classes linked to your personal GOALS. It's highly personalized. Neither CA nor equity Fund manager is a competent person for this.

 
Financial Planning myth 6:- Financial Planning is a Product.

Fact- Financial Planning is not the PRODUCT, it's a PROCESS. Your Goals, Financial situation is dynamic and also net worth. FP is taking your present net worth to desired level while balancing present life and protecting from Risks

Financial Planning myth 7 :- Myth:- Once done, Financial Planning is for Ever.

Fact - FP is a PROCESS. As you move ahead, Financial situation  keep changing. Continuous Goal Tracking is required. Your GOAL itself may change, add or subtract.

Financial Planning myth 8 :- Myth:- Financial Planning is a Freebie.

Fact – True Financial Planning is a blueprint of your financial life. How can it be free? Just as architect charge you for blueprint of house, CA and lawyer charge you for their services, a planner also charge you for the service. If somebody is giving it for free, it means, it’s a fraction of your financial life plan that generates some sales interest like insurance or investing.

Financial Planning myth 9 :- Myth:- Financial Planning is Goal Planning.

Fact – Goal planning gives you list of goals and future values of those goals based on inflation. It can at best give you the SIP required from today. However your present wealth can also be allocated to those goals. This is not covered in Goal Planning.

Financial Planning Myth 10:- FP is ONLY for Rich.

Fact- It's for anyone who has Goals. Because every Goal has Financial aspect and set time limit. Actually, a rich person may afford not to plan, but others need it more.