Before I answer the above question let me take you to a situation in life.
When you have a stomach ache you go to the chemist (don’t have time to go to the Doctor…) and ask for medicine. He will give you Combiflam etc., or may be some other pain killer. That may or may not stop your pain. But if you have it again after sometime you will again take the medicine (?) sold to you by the chemist. Now let’s say if you go to a Medical practitioner ( Doctor) what will he do? He will ask you many questions like ‘where, when it pains or how acute is the pain, which side of the stomach etc, etc. He might ask you to undergo Sonography if it is persistent and acute. Then he will surprise you with the outcome of his investigations that it is a spot of ulcer and good that you met him then or things could have been worse. He may suggest you some medicines, diet to follow etc. And you become alright and have a normal life as the ulcer has been removed permanently. He in fact has a review session with you and ensures that you are on a right path as far as your life style (food habits, water intake, exercise, and relaxation) is concerned. You are now saved from something that could have been more serious just because you met the Right Professional who is expert in his field.
A Financial Planner does the job of the Medical Practitioner as far as your financial health is concerned. He doesn’t sell you products like what an agent may do. He follows a predefined process to ensure that your financial health is improved. And if he finds that with the present rate of investments, your pattern of income and expenditures will not support in achieving your future financial goals, he will suggest or recommend you those things which will help achieve your goals. He may allocate your money to different asset classes depending on your goal and the time in hand to achieve them. And he will work with you all along to ensure that you are on the right path.
I will give you a few examples I came across while doing financial planning for several families.
There is a Senior Manager of a company who was sold a pension plan of premium Rs. 2,00,000 per annum, by a reputed banks branch manager. Last year I was referred to him by my existing client and he engaged me to plan his finances. What I found during the data analysis is that this gentleman requires a life insurance of almost 1 cr. But now I couldn’t give him life insurance because he underwent bypass surgery in between the period since he was sold the pension plan and my meeting. The point I am drawing here is that, if the bank manager had done his due diligence instead of just selling him the pension plan off the shelf, he could have also found out the need for life insurance and could have allocated part of his huge premium for life insurance, while he was in good health. Today he doesn’t have enough life insurance to enable his three daughters and wife to continue the life style if anything happens to him.
A Financial Planner helps one avoid any such situations he may come across in life. In fact, the job of a Financial Planner is to help people do a better job of Spending, Saving, Investing, Insuring and Planning. Financial Planning is a scientific tool to let people know where they stand today and whether they are well placed to journey across any economic consequences in the course of their life. It also enables people to set up specific financial goals and plan investments accordingly.
Some of the financial goals can be,
• Planning for children’s education
• Planning for children’s marriage
• Buying a house or buying a second bigger house
• Buying a car
• Enjoying a vacation with family every year
• Living a comfortable retirement life without any compromises
• Leaving behind an estate for children
Through proper financial planning, a person can accomplish all the above goals. Financial planning can help a person identify his / her goals, invest towards achieving those goals and regularly review the investments every year to make sure they are on track to meet the desired goals.
In short, financial planning is a journey and not a destination.
And in this journey you will need somebody as your guide, mentor, and caretaker – who is the Financial Planner.