Financial planning a way to life

Financial planning a

way to life.

A financial planning is not just about managing your money but it

encompasses your entire life.

ARB financial consultants,Pune.

ARB financial consultants, Pune. 020-24530072,8862079291/92 www.arbfinancials.com

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Why should Why should Why should Why should one MUST one MUST one MUST one MUST think think think think about Fabout Fabout Fabout Financial inancial inancial inancial PPPPlanning?lanning?lanning?lanning?

Following are the few challenges which you should think of:

1. Because of the globalization many opportunities are opened up & there

is a sizeable increase in the take home pay.

2. You have to work under pressure and most of the organizations there is

standard reporting time but no fixed time to leave office.

3. The lifestyle expenses are increasing day by day.

4. As India is at growth phase the inflation is at peaking.

5. Indian social structure is changing; you are a representative of Nuclear

family social system.

6. The dreams are high but all of us have a limited income.

7. The financial market is flooded with different options which are

complex in nature.

DoDoDoDoeseseses financial planning help me financial planning help me financial planning help me financial planning help me overcome overcome overcome overcome above challenges?above challenges?above challenges?above challenges?

Yes certainly; Financial planning has a process address the above challenges

however let’s first understand what Financial Planning is.



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What is What is What is What is FFFFinancial inancial inancial inancial PPPPlanninglanninglanninglanning????

When we hear about Financial Planning, most often it is misunderstood as just

investments, or it being about tax planning or taking an investment product

etc.

This is not a financial planning. It is about managing your overall financial

needs, requirements, liabilities and responsibilities.

Financial planning is also about channelizing your today’s investment portfolio

and future investible surplus to achieve your financial goals in life and make

you financially successful.

I know you would now ask what you mean by “financial goals”.

FFFFinancial goalsinancial goalsinancial goalsinancial goals

The milestones in your life which requires financial readiness to fulfill those

are called as financial goals.

Marriage, Child birth, Child’s school admission and fee expenses, Child’s

higher education, Child’s marriage, Buying a home, Domestic tours,



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International tours, buying a car, farm house, retirement are the few

examples of milestones which require the monetary backup and thus called as

financial goals.

In the financial planning process, the cash flow of your entire life is projected

which will help you understand what will happen in your financial life in

future. This helps you to take proactive and informed financial decisions.

The processThe processThe processThe process of financial planningof financial planningof financial planningof financial planning::::

At ARB Financial consultants we follow 8 step process for financial planning-

.

1. Data Data Data Data gathering:gathering:gathering:gathering: This will help to understand what the current status of

your finances is. This will form a base for your financial planning

exercise.

2. Goal Goal Goal Goal setting:setting:setting:setting: What are you earning for? Confused? This step will help

you to understand your objectives during the journey of life. Here we

help our clients to determine financial goals. The goals then become

the target and your cash flows can be streamlined towards same.

3. Cash flow Cash flow Cash flow Cash flow analysis:analysis:analysis:analysis: In this step the entire life cash flow is projected.

Cash inflow is plotted against cash out-flow considering the returns on

Data

gathering

Goal

setting

Cash flow

analysis

Cash flow

protection

Preparation of

financial plan

Investment

portfolio creation

Implementation

Review



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investible surplus. This step help our clients to understand weather the

financial goals are realistic.

4. Cash flow Cash flow Cash flow Cash flow protection:protection:protection:protection: Once the cash flow is created the financial risk in

the life is analyzed and a robust financial risk management (FRM)

system is structured with the help of insurance. The suggested

insurances are Term, life insurance, medi-claim, Accidental death &

disability insurance etc.

5. Preparation of the financial Preparation of the financial Preparation of the financial Preparation of the financial plan:plan:plan:plan: After adjusting the premium towards

the new FRM system final cash flow plan is prepared.

6. Investment portfolio Investment portfolio Investment portfolio Investment portfolio creation:creation:creation:creation: Once the final cash flow is prepared

investment decisions are taken in consideration with Income tax

optimization. The investment portfolio is created in consideration with

financial goals which result in right asset allocation strategy for client.

7. Implementation:Implementation:Implementation:Implementation: This step is very important because only planning is

not sufficient to realize financial goals but it has to be backed by

execution- The actual investments into suggested products.

8. Review:Review:Review:Review: As the whole financial field is dynamic the review is very

important so we can track our path and count on our progress.



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� The first and most important advantage of financial planning is you are

in better control of your finances and know what is precisely happening

with your money, which majority of the people has no clue about.

� You will be in a better position to take all financial decisions in a

structured and channelized way. This is what called as informed and

thoughtful decision making.

� You could know what to expect from your investments.

� There is no need to worry about uncertainties because risk mitigation

plan is in place to take care if any.

� You can utilize the financial resources in optimum way.

� You will be saved from the possible pitfalls in the financial market.

� Financial planning will keep you on target and will result in

achievement of your financial goals.

� Most importantly it will help you in concentrating in your primary work

i.e your job or business or profession.

Thus it help you to have a peace of mindThus it help you to have a peace of mindThus it help you to have a peace of mindThus it help you to have a peace of mind, , , , gives better life qualitygives better life qualitygives better life qualitygives better life quality &&&& has a has a has a has a

power to cut down almost 80% to 90% power to cut down almost 80% to 90% power to cut down almost 80% to 90% power to cut down almost 80% to 90% financial financial financial financial problems in life.problems in life.problems in life.problems in life.

The The The The advantages?advantages?advantages?advantages?



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Qualities to become a Successful investorQualities to become a Successful investorQualities to become a Successful investorQualities to become a Successful investor

The main success in the process of wealth creation lies in investor

characteristics-his/ her approach towards circumstances and ability to act in

response to the situation.

“The world belongs to optimists; the pessimists are only spectators.”“The world belongs to optimists; the pessimists are only spectators.”“The world belongs to optimists; the pessimists are only spectators.”“The world belongs to optimists; the pessimists are only spectators.” -

François Guizot

If you want to become a successful investor, you should adopt the following

important qualities-

DisciplineDisciplineDisciplineDiscipline:::: This is most important quality. Implementation of the planned

investments in religious manner requires a discipline. This is the ability to

withstand the temptations and survive in a critical moment. Will-power is a

necessary addition which will let you obey the discipline and move forward

regardless of all obstacles. In the process of wealth creation there is

necessity to execute things in much disciplined way and over a long period of

time, where the investor has to overcome emotions of Greed and fear.

Patience:Patience:Patience:Patience: It is very equally important to understand the quality of the

investment and the time period it needs to deliver results. Different types of

investments require different time periods to deliver returns and this has to

be understood even before one invests in it. So investor should have a

patience to wait for that specific time to get results.

Realistic expectations: Realistic expectations: Realistic expectations: Realistic expectations: Whenever you take a decision of investment you are

taking it on the basis of certain assumptions. These assumptions should be

realistic; this stays true for the investment as well as your income

expectation and setting financial goals.

Analytical skills:Analytical skills:Analytical skills:Analytical skills: The market is flooded with the information, investor should

have an ability to analyse the information and derive the benefits. These



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skills are required to find out first what is required from the investment and

then finding out which investment suits to your requirement from the financial

market. In absence of these they should trust (& also evaluate) their financial

advisor to provide right analysis to them.

Systematic investing:Systematic investing:Systematic investing:Systematic investing: The advantages of systematic investing and the power

of compounding, which is also described as “Eighth wonder of the world “by

Albert Einstein, should be well understood. Starting early, investing regularly

and averaging the cost of purchase are the best way to wealth creation.

Systematic way will help you in building wonder for your life brick by brick

means small amounts you had invested will give you good wealth creation.

Planning:Planning:Planning:Planning: One must have his goals clearly defined, and then there should be a

plan to make those achievable, because without a plan of action, targets

cannot be achieved. Planning is the first step to making your dream come

true. This helps in handling the actual portfolio much better as there is no

doubt about the money staying invested.

Independent decision making: The decisions which you are following should Independent decision making: The decisions which you are following should Independent decision making: The decisions which you are following should Independent decision making: The decisions which you are following should

not be governed by mass effect the investor should have an indepnot be governed by mass effect the investor should have an indepnot be governed by mass effect the investor should have an indepnot be governed by mass effect the investor should have an independent endent endent endent

thinking process while taking decisions. thinking process while taking decisions. thinking process while taking decisions. thinking process while taking decisions. A number of successful investors

have commented on the importance of independent and individual decision-

making. As well have you should have courage to take responsibility of

decisions.

Ready to ask questions: Ready to ask questions: Ready to ask questions: Ready to ask questions: It is essential that you are able and willing to ask

questions. If you think you know all the answers you probably don’t even

know the questions. When any doubt comes in your mind about the

investment decision you are taking you have to ask question to yourself and

have to find out the answer.

Creativity: Creativity: Creativity: Creativity: Creativity is necessary to look at investments from different

angles, considering all the variables that could negatively or positively affect

an investment. Also, creative mind will help in analysing the future and try to

forecast the outcome of current business plans.

Flexibility: Flexibility: Flexibility: Flexibility: It is important for investors to be flexible and not permanently

stay invested in a particular type of asset. This is important because the

financial market is dynamic. Flexibility is also an important quality that keeps

one from holding on to an asset out of loyalty – flexibility allows one to

change as times change and as new opportunities present themselves.



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Ready to pay for the advice:Ready to pay for the advice:Ready to pay for the advice:Ready to pay for the advice: If you lack in any one or more of the above

mentioned qualities then you should have one quality-i.e. to accept your

limitations and be ready to take the advice from expert or the professional

who is having knowledge in the financial planning and having a capacity to

guide you in unbiased way, preferably a CFPCM.

If you are looking for the unbiased and expert advice then you should be

ready to pay the fees.

“If you don’t use your muscles, they get weak. If you don’t use your mind, it “If you don’t use your muscles, they get weak. If you don’t use your mind, it “If you don’t use your muscles, they get weak. If you don’t use your mind, it “If you don’t use your muscles, they get weak. If you don’t use your mind, it begins to fail.begins to fail.begins to fail.begins to fail. ------------------------ Sir John TempletonSir John TempletonSir John TempletonSir John Templeton

TTTTaking financial planning decision based on your risk profiler may be aking financial planning decision based on your risk profiler may be aking financial planning decision based on your risk profiler may be aking financial planning decision based on your risk profiler may be

dangerous for dangerous for dangerous for dangerous for you?you?you?you?

Risk profiler is mostly used in the field of investment management; it is

considered that you should invest your money as per your risk profile. But as

an investor is it a right decision to base your investments just on the basis of

risk profile?

Let’s understand first what is the risk profiler?

Majority of the insurance or financial companies have an online or offline

questionnaire to tell you about your risk appetite. Normally these are based

on some parameters that decide the types of risks, e.g.

1. Your age.

2. Your income.

3. Your family size.

4. Your loan liabilities.

5. Your investments.

6. What is your knowledge of financial products, markets etc.



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7. What you feel about the financial market. Etc…….

Depending on the answers individuals are categorised into: Aggressive

investor , Conservative investor , Protective investor, and the questions as

well as categorisation differs from company to company.

Now based on this categorisation a pre-specified asset allocation is

suggested viz.

• Aggressive: 80% equity +20% Debt.

• Conservative: 40 % equity + 60% Debt.

• Protective: 20% equity + 80% Debt.

And lastly the investments products are suggested.

Does this questionnaire really reveal your risk profile?

“My answer is NO.”“My answer is NO.”“My answer is NO.”“My answer is NO.”

I am sure that most of the professionals working it the financial industry will

not agree.

The answers of the individual who is opting for this questionnaire will keep

on changing as per the situation on short term period as well, few of those

are-

1. When markets are down same individuals risk profile shows to be a

Protective investor and when they markets are at high he may come

out to be Aggressive. So it is based on the financial market.

2. The answers given are on the basis of awareness of individuals about

the different aspects of financial management. If he/she is educated on

those the answers change in spite of the factors being the same.

3. The individual who comes out to be Protective may be very aggressive

about risky asset class; the classic example is real estate investment.

Individuals not comfortable with share market are very bullish on real

estate investment☺.

4. Only age and earnings may not give clear idea about individuals risk

appetite, normally it is said that 100- your age = Equity exposure. This

cannot be generalized as there are some other aspects also like some

short goals, financial dependency etc.

5. The result of risk profiling majorly speaks about the allocation in two

asset classes Equity and Debt. , So what about other asset classes like

Cash, Real estate and Commodity?

6. This system does not consider the risk arising out of inflation.



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What What What What is the major flawis the major flawis the major flawis the major flaw in generalizing risk profile system based on Risk in generalizing risk profile system based on Risk in generalizing risk profile system based on Risk in generalizing risk profile system based on Risk

profiler?profiler?profiler?profiler?

It is observed that people having sizeable money and good regular income,

tend to be aggressive. They keep on taking higher risk, whether or not

required and if it fails may lose heavily.

A person having less amount of money and less regular income , tends to be

conservative or protective, so he/she do not take any risk ( That also he

assumes but may end up in taking high risk of negative real rate of return ) ,

may be needed or not and loses out on opportunities to earn higher income.

Therefore, Therefore, Therefore, Therefore, I feel I feel I feel I feel it is only a marketing tool to sell the products.it is only a marketing tool to sell the products.it is only a marketing tool to sell the products.it is only a marketing tool to sell the products.

What should people do then?

Your investment decisions should be based on the financial goals which you

want to achieve in your life and not on the risk profile.

A person having good amount of money and good regular income , having less

goals and having enough money to fulfil financial goals as per the cash flows ,

should protect his existing wealth and future income so that he/she can

achieve financial goals, So the stance may be Conservative or Protective

depending on the wealth, not necessarily Aggressive.

In a same way a person having less amount of money and less regular income

, with high financial goals, has to setup first realistic goals and then have to

take some calculated risk to achieve those, even if risk profiler suggests

them to be protective.

Achieving your financial goals in life is a success of life,

Planning for financial goals is like planning for a holiday. While planning our

holidays we first ascertain availability of time, plan the destination, and

required finances. After analysing these parameters we decide on the location

and mode of transport and other logistics.



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Similarly, based on your financial goal (Destination), Years to goals (Time

available) and investible funds (Affordability) we should choose the financial

vehicle to reach the financial goal.

Having a financial plan for self is thus of prime importance.

Golden rules in Personal financial planning:

Make a monthly budget of your expenses and track them.

Invest with objective in mind.

Invest in right asset class.

Invest regularly.

Stand by your decision even if the financial market scenario changes for a

temporary period.

Invest lump sum if the investment instrument is offering fixed income and

invest in parts if the returns on the investment instrument are volatile.

Step up your investment as your income goes up.

Create appreciating assets first and then go for additional liabilities.

Hold the long term loans which are offering less rate of interest than the

opportunity in the financial market for the same period.



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Vision: Touching lives to make people financially successful and wealthy.Vision: Touching lives to make people financially successful and wealthy.Vision: Touching lives to make people financially successful and wealthy.Vision: Touching lives to make people financially successful and wealthy.

ARB financial consultant is formed by Mr.Ashish Ramesh Bhave, who is

CERTIFIED FINANCIAL PLANNERCM and having a rich experience of financial

markets over a decade,

Ashish is a well-known name in the Pune’s financial circle,He is a financial

consultant, Coach as well as trainier.

We are Pune’s first “Fee only” and leading financial planning consultancy.

ARB’s ARB’s ARB’s ARB’s specialtiesspecialtiesspecialtiesspecialties::::

� Having a strong base of satisfied clients.

� Unbiased financial planners.

� Driven by business ethics.

Customized approachCustomized approachCustomized approachCustomized approach

� Financial planning is a fulltime profession for us.

� We are not in the business of selling financial products.

� We are interested in building long term relationship with clients.

You can reach usYou can reach usYou can reach usYou can reach us atatatat ::::

ARB Financial consultants .

“ Snehashanti “, Navi Peth, Off shastri road.

Pune.

Website : www.arbfinancials.com

E-Mail : [email protected]

: [email protected]

Cell : +91- 87931-07044/ 88620-79292/ 88620-79291

Landline : : 020-24530072



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Financial planning a way to life

Economy & Finance

Transcript of Financial planning a way to life