Post on 08-May-2015
bui ld ing ca ree rs
PersonalFinancial Planning
The Need of the Day
Prashant V. Shah CFP PROGRAM HEAD
Anagram Knowledge Academy
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Where you are on the driver’s sit of your life
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Expectations of the Participants
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Financial Planning
A continuous process through which a planner helps his client to achieve his life goalsThese goals may be:• Retirement Planning• Retirement Planning• Children Education• Recreational Goals etc.
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Transact-ion
LoanInvestment
Money DeficitSurplus
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Income Expense Savings
Investment
Short TermLong Term
Revenue from Investment
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Retirement Planning?
It is the process of ensuring sufficient
financial resources to the financial resources to the retired person so that he/she can enjoy the
desired lifestyle during the retirement years
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Why Retirement Planning
• People are living longer
• Change in demographic profile
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Questions People Face for RP
• When to start
• How much to be saved
• Estimating retirement income and expenseexpense
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Wealth Creation
Involves the building of assets by
means of careful investment into
asset based investments, usually
over a long period of time so as toover a long period of time so as to
achieve an income stream that will
ensure a continuation of a high
quality lifestyle in the years beyond
retirement
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Principles of Building WealthStart investing early
1.33
5.71Crore*Mr. E Mr. L
Investment Starting Age 25 40
Investment - Monthly SIP Rs.5,000/- Rs.10,000/-
Saving Years till age 60 35 years 20 years
1.33 Crore*
40 years25 years 60 years
Total Investment Made Rs.21 lacs Rs.24 lacs
*Expected rate of return 15%
Investment requires time to growInvestment requires time to grow
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Principles of Building Wealth
• Investment does not requiretiming but it requires time togrow
• Reap the benefit of compounding
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The Simplified Maze..
• All debt is a bad debt
• Have written budget andtry to adhere
• Set the SMART goals• Set the SMART goals
• Let your money work foryou
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Challenges
• Longevity Risk
• So when such plans aremade the nest should behigher than the required forthe expected life…
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Inflation Risk the Biggest Chellange
• Too much money chasing fewgoods
• Increases the future cost ofgoods
• Reduces the purchasing power
• While planning for retirementinflation estimates plays thevital role
• Average inflation can beassumed between 5% to 6%based on the past average
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Case study - Inflation
• Suppose Mr. Chauhan aged 45 spends
Rs. 3,00,000 p.a.
Expected increase in standard of living 3%
Standard of living during retirement 80%
• Imagine the amount that he will
require at the age of 60 years for one
year
Its 9,51,650 approximately
Standard of living during retirement 80%
Inflation 5%
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FP and Investment Planning
• Through investment one can achieve life goals
• It is a path to retirement
Must consider
• Asset allocation• Asset allocation
• Risk
• Time
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Asset Classes
• Equity • Debt • Money Market• Gold • Gold • Real Estate
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FP and Insurance Planning
• Loss of earning can destroy the plans
• Simultaneously it is not possible to cover all the risks possible to cover all the risks because of the cost
• Life insurance
• Disability income insurance
• Medical insurance
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Human Life Value
Mr. Mohan is an assistant manager in a private firm• Present age is 45 years and retires at age 60
Present salary Rs. 2,40,000 pa
Total life insurance premium Rs.15,000 pa
• Medical expenses are being reimbursed by thecompany.
• Assume discount rate to be 8% p.a.
Income tax and professional tax Rs.35,000
Self-maintenance expense Rs.30,000
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Calculation
Gross total income 240000
Less:
Self maintenance expenses 30000
Taxes payable 35000
Life insurance premium 15000
By discounting the annuity of Rs.160000 for 15 years @8% His insurance need for today is 14,80,000
Life insurance premium 15000
Surplus income generated for the family 160000
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Types of Plans
• Term Plan• Pure Endowment Plan• Pure Endowment Plan• Non Traditional Plan
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Tax Planning and FP
• The biggest enemy of FP is taxes
• Taxes eat up lots of wealth of theinvestor
• Efficient tax planning can help aninvestor to generate better wealthinvestor to generate better wealth
• Taking higher risk and payinghigher tax is not a wise strategy
• Focus more on tax reduction
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I want to Buy a Car
• Let say, you are buying a car of Rs.5 lakh and Rs.1lakh you have paid as down payment. Rs.4 lakh isloan for 5 years.
Rate interest on loan 12% pa
No of EMIs 60
EMI 8900 approximately
Decline in value of car per year 20%
Loss of interest on downpayment
8%
KM run per year 10,000
Mileage 15 km per liter
Price of fuel (petrol) 55
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Cost of Ownership
Fuel cost per km 3.67
Interest burden of loan per km 2.68
Loss of value per km 10Loss of value per km 10
Loss of interest on downpayment per km
0.8
Total cost of running car per km 17.15 for the first year
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Force Theory of Money
If I get Rs.10 lakh today, my all the financial problems will get over and I can start with planning.
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What is Better
• Shall I buy a house or take it on rent• Shall I buy a smaller house or bigger house
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Retire at 60W
ealth
Accumulation Years Retirement Years
Wea
lth
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Retire at 50!W
ealth
Accumulation Years Retirement Years
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Retire at 65W
ealth
Accumulation Years Retirement Years
Wea
lth
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Retire from WORK…. Retire from WORK…. Retire from WORK…. Retire from WORK…. Not from LIFE!!!!Not from LIFE!!!!Not from LIFE!!!!Not from LIFE!!!!
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Websites to Visit
For Financial Awareness• www.jagoinvestor.com• www.valueresearchonline.com• www.moneycontrol.com• www.moneycontrol.com• www.moneylife.comFor CFP• www.prashantvshah.wordpress.com
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Sharings of Participants