Diwali is around at its really the best time to pause and rewind. This is applicable to financials of an individual too. If still, you have neglected the financial planning way, this is the time when you can restart your financial life. Let’s us at FPGI again recreate the financial planning meaning to you.
But before that – We All at FPGI Wish You & Your Loved One, A Very Happy & Prosperous Diwali.
If a survey is conducted on the meaning of Financial Planning among a sample size of 100 individuals, it will usually have tax planning as the most common answer as it is hard for most of us to think beyond that because of the household advice received by us through our parents and relatives since we start earning. The other version that can be most commonly heard in this context is that I have a lot of insurance policies. Alas, none of these captures the real essence of financial planning from any angle.
According to Investopedia, a financial plan is a comprehensive evaluation of an investor’s current and future financial state by using currently known variables to predict future cash flows, asset values, and withdrawal plans. Most individuals work in conjunction with a financial planner and use current net worth, tax liabilities, asset allocation, and future retirement and estate plans in developing financial plans. These metrics are used along with estimates of asset growth to determine if a person’s financial goals can be met in the future, or what steps need to be taken to ensure that they are.
The above definition may sound very confusing and full of jargons to the average Indian but simply put the real meaning of financial plan is to clear the clutter that usually encompasses a person’s financial life and giving him a clear roadmap so that he can reach or optimize his/her goals in accordance with his financial situation. Most people mix it up with only number crunching around the financial goals but that is only a fraction of it. The real meaning of financial plan is to make the client aware of his actual financial situation and empowering him/her about personal finance related issues.
Usually, whenever a couple visits a financial planner for financial planning counseling we can clearly make out that they don’t have clear goals in mind and the biggest surprise is that they are usually not bothered with retirement. During the investor awareness camps when we try to highlight the importance of financial planning, we find the participants are looking more for products instead of the solutions to their financial issues. We even face issues in convincing the HR persons to realize the positive impact it can have on the employees.
The role played by financial planners is more of a coach who will be channelizing the inputs/resources optimally to maximize the output. He has also started to understand the lucrative Ads of various investment products and consults us for all his financial decisions. A financial plan is more of an enhanced version of a Google Map which gives the traveler the shortest route to reach the destination. The Google Map is based on some existing milestones / locations whereas a financial plan helps you to visualize future financial events which range from immediate period to two or three decades ahead and take appropriate steps in the present day.
It helps the client to take prudent financial decisions and not fall prey to marketing gimmicks. The financial plan solves the Jigsaw Puzzle related to personal finance queries which occupy the minds of the concerned person. Once the plan is done he/she can take a more comprehensive approach to their finance and stop viewing the plan in bits and pieces. It lends a much more dynamic and wholesome approach to his/her finances. The financial plan also helps the client to be at peace with his / her financial life and can concentrate more on his own expertise which effectively enhances the productivity levels. The financial planner acting as a coach helps the client to remain focused on his financial goals and does not allow him to get disillusioned with the change in market scenarios.