I do(nt) need Financial planning

“Hey, where are you these days and what do you do?”, asked an old friend, whom I was meeting after almost four years.“I am a Financial Planner” I replied. “Oh! You deal in investments and all that stuff? Good. I would love to have your services but for planning you need finances and paise bachte hi kahan hain.”

The same friend called me after a fortnight and asked for a child plan to save taxes and indirectly for his child’s future. This was the time I explained to him the concept of financial planning. Once again his reply was, “Brother, let’s go with child plan this time and we’ll discuss about planning later. Maybe next month, as I am expecting to get a good bonus.” Next month, he again called me to ask for advice on the share market. As he had got a good bonus that month, 60% of the bonus he had already used to upgrade his car and remaining 40% he wanted to invest in the stock market for good returns over next 8-10 months. There was no goal again, and the target was to accumulate some amount for down payment of a flat, which he wanted to purchase as an investment.

Last month he lost his father, on whom he was dependent for 50% of his housing loan EMIs. With car loan EMIs, school-going children and rising school fees, high Inflation and uncertainty in the job scenario etc., he was looking tensed. I again called him, and asked for his financial details to have a look and sort out his financial concerns. But this time again he replied with the same answer, that he would definitely contact me whenever he had enough money.

This is not an isolated problem. This is the case with every person who is ignorant about financial planning. Many people still think that financial planning is just about making investments, which they will make as and when there is surplus money in their account or as and when the need arises. People are not in a habit of looking at the bigger picture, a holistic view of their financial matters, their goals, liabilities, responsibilities etc. and start making arrangements from day one of their financial life. The ignorance on this subject has made people develop a number of excuses to avoid a structured approach, which can make their financial life much better. Some excuses, I have pointed below:

• No money or enough money: There are many people who feel that they do not have enough money to plan with. But if this is true, then this actually calls for  financial planning. Cash flow / debt management and budgeting tools will help them find out where exactly the problem lies. They will have to make it work as there are goals, which you cannot compromise on – like Children’s education.

The opposite is that there are many people who feel that they have enough money and are doing well, so they do not need to plan. But they have to come out of this illusory world and plan to manage their finances, to cope up with disaster or uncertainty.

• My business is my first priority: My business generates 40% return per annum. Do you have any instrument which can give better returns than this… said one businessman. This question was due to the same misconception which most of the people have about financial planning. But here I reiterate that it is not only linked to investments. In this case financial planning will help you to manage the uncertainties and risks associated with your business, which may hamper your personal finance as well. Just imagine the state of your personal finances if something happens to the head of the family. Have you planned for hospitalisation expenses or the after-effects of demise of bread-earner? What about a business continuity plan? What if any of your employees met with an accident while on work?

Financial planning never wants people to stop concentrating on their business, but it wants a separate personal financial life. Your business should have a positive effect on your personal well-being and any problem in business should not hamper your personal life goals in any way.

• My job doesn’t leave me with enough time to plan for finances:

You spend full 365 days of the year working to achieve your employer provided goals. But when it comes to your personal goals you don’t find enough time. Please try to understand that your personal goals and problems will always remain personal. Your employer will not help you in paying off your rising home loan EMIs, your children school fees etc. Moreover till the time you are helping your employer to achieve his goals, you are in the job. When you will be of no use to him, you will be out. Try to understand that if your personal finance matters are in order only then you will be able to give 100% to your job.

• We only invest in real estate: Fine. Good for you. So how is it linked to not following the financial planning approach. Real estate is one of the asset classes where a financial planner may or may not advise you to invest in and that too only after looking at your overall financial picture. If your goals are well articulated and prioritised and other aspects like risk management, estate planning etc., have also been taken care of and your real estate investment is as per the proper asset allocation that is required in your case, then the financial planner would be fine with that. Else, ofcourse, the financial planner would want a realignment.

• Already have so many insurance policies: This is another breed of people who believe that financial planning is about purchasing different policies like child plans for children future, pension plans for their own retirement and other ULIPs or endowment policies for investment etc. But here again they are completely wrong, as financial planning is much more than this. Financial planners rarely advise on one product for one goal. Rather than making people purchase one product, they help them design a road map which will take care of all their responsibilities and goals.

• My chartered accountant is my financial advisor: Every profession has some expertise. Chartered accountants are experts in taxation, corporate accounting and legal matters. In the case of personal finance and financial planning they may advise you on basic issues like investments to save tax under section 80C or 80D of the Income Tax Act, but to have a detailed and holistic view you need help of financial planner. As for stomach-ache you should not visit a cardiac surgeon, same for personal finance issues you should not visit a chartered accountant (CA). If your financial planner feels the need for CA, he will advise you to.

Please try to understand that financial problems arise not because of your destiny or low income profile. It is because of your approach and behaviour towards finances. Having a lot of money may not solve all your financial worries but having a disciplined and structured approach towards it will surely help in reduction of those worries. So, it is always better to consult a doctor rather than going to chemist for medicines. And go to the right kind of specialist, for specific ailments.

This article has been written for Financial Planners’ guild’ India. You can find the original version at www.fpgindia.org