Planning for a secure financial future is a must! It can be done, and is not easy, but is not rocket science either.

Maybe you’re saving to buy your first home?
Perhaps starting your own business is a dream.
The costs of a college education have spiraled and you may wonder how you will pay for your child’s education.
You will probably live longer. Additional years after retirement WILL cost more than originally planned.
Your company pension plan may not be enough to maintain your standard of living after retirement. Worse, it may cancel the pension plan by the time you retire!
Complex financial marketplace and changing tax laws make it difficult to understand your financial picture.

Everyone needs to plan for tomorrow. At every income level, there are steps you can take to make more efficient use of your assets and to ensure a secure financial future. It makes sense to develop well-defined goals and to map out appropriate strategies to turn your dreams into reality. To help you get started, below are some frequently asked questions about personal financial planning.

What is personal financial planning?

Personal financial planning is a process, not a product. It is an organized, well-planned system of developing strategies for using your financial resources to achieve both short- and long-term goals. You may think of the process as helping you to answer three straightforward questions:

Where am I?
Where do I want to go?
How do I get there?

When should I start planning?

It is important to start planning as soon as you can. Time passes quickly – it is never too soon to start planning for tomorrow. Nor is it too late to start a plan.

Who should prepare my personal financial plan?

A well-qualified financial adviser should work with you to prepare your plan. A CA financial planner combines the objectivity and trust long associated with the CA profession and the years of experience and expertise in personal financial planning. However, if he does not do this for a profession (most of them do not), look for a financial planner who is a full time professional.

What should it include?

A comprehensive and complete financial plan – one that addresses your entire financial picture – should include a review of your net worth, goals and objectives, property and other assets, liabilities, cash flow, investments, retirement planning, estate planning, tax planning and insurance needs, as well as a plan for implementing your goals.

I don’t have a lot of money. Do I need a full-scale financial plan?

You may not. You can seek out different levels of financial planning advice, from counseling on a particular issue to comprehensive planning. Speak to the advisers you are considering and discuss with them your requirements. You should be able to find one who meets your needs.

What role does goal-setting play in financial planning?

It is important to list both short- and long-term financial goals on paper. You can then rank the importance of the goals. If you are saving toward something tangible, instead of just saving, it may be easier. These goals could include: available cash for emergencies, education for children, care for family members, retirement, a nest egg to permit a career change, acquiring or selling a business, estate planning, financial independence or personal objectives such as a special vacation or second home.

How do I know how much I am worth?

One of the first things that you should do in reviewing your financial situation is to determine your net worth. Many people are surprised to find out how much they are really worth. First, estimate the value of your assets. If you have owned your home for a number of years, you may be sitting on a nice nest egg. Several different real estate appraisals will help you determine its worth. Organize bank, mutual funds, insurance policies and brokerage statements and record their value. List your liabilities such as housing loan, car loans or credit card debt. Subtract your liabilities from your assets and you will have a good estimate of net worth.

How can I plan for tomorrow when I can barely pay for today?

Create a budget. Determine what you actually spend each month. It is easy to keep track of large expenses such as mortgage and car payments. The variable items such as food, clothing and entertainment are often what get away from us. Write your expenses in a diary or an excel sheet – it is far more efficient than the human memory. The human memory is selective in remembering. Excel and diary are not

How much should I be saving?

It is hard to apply a rule of thumb toward savings, because it varies with age and income level. Ten percent of CTC is a good start. If that amount is too high for you, do not let that deter you. You can start by putting a little money aside each month and slowly increasing it.  You should save as well as invest.

How does insurance fit in to the process?

Evaluating your insurance needs is part of personal financial planning. The insurance industry has changed a great deal over the past few years and there is a wide array of new products. Some of them may be better options than your current coverage.

Do I need a will? – not sure, if you are SURE that you are NOT going to die, you do not

Everyone needs a will. Whether you are single or married, you need a will. No one but you knows how you want your estate divided after your death. It is especially important if you have children. If you do not have a will and both you and your spouse die, the court will appoint a guardian for your children. Maybe you would have chosen someone else.

How often should I update the plan?

It is good to review the plan when there is a significant life event such as marriage, birth, death or divorce. Any change in financial position should be evaluated as well. Many people have an annual update that reviews how the plan is being implemented. The review also considers changing goals and circumstances.

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Me: Thank you

He: Sir, are you a Chartered Accountant?

Me: Yes sir..

He: Will you file my Income tax Return?

Me: No sir, i do not do that work…

He: What work do you do?

Me: Regarding investments..

He: Arre, will you manage my portfolio…I bought some shares of …

Me: No, no I am not a portfolio manager

He: Will you advise me on how to manage my financial life?

Me: I can, but not sure whether you will listen to me. NOrmally I deal only on the investing side. I really do not understand Real Estate, Gold, etc. Nor do I understand market timing. I do not understand rating of mutual funds.

Worse. I do not know anybody who does, and is willing to work for me.

He: All this is very confusing, will you be my financial planner?

Me: I would have been. However, Debashis Basu of Moneylife and one more person who gave up his CFP education say you do not need a financial planner. So I am confused about what you want from me too!

He: Sir ‘What can you do for me?’ I want to be engaged with you for my investment, tax, …etc.

Me: Come and meet me. I will charge you a per hour fee. Make your investment through my code. This year it will be 5 hrs. Next year 2 hrs…in 2016 YOU SHOULD NOT NEED ME..there will be nothing that I will have to tell you..In fact if you are very smart, you do not need me now itself!!!

He: Thank you, Sir, what is this post called?

Financial Coach. India’s first financial coach, perhaps? L O L

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I have been asked this question a zillion times. My answer is – why do you not learn what you should know and what your relationship manager should know?

Actually the answer to this is sheer laziness. Most people do not want to learn about investing, but still hope to outperform the market by a mile (so they will not index). Regarding life insurance, the less said the better. They have no clue on what to buy, will not pay fees for consulting, and their ego will not allow them to ask. So they go ahead and s…w their money. Be my guest. If you lose money, hey that is not my problem is it?

Well I think there are a lot of things that you need to understand if you want to do your own investing – in mutual funds, direct equity or almost anywhere.  Let me name some of the things that you should know:

Economics: GDP, GNP, employment numbers, growth rate, fiscal policy, monetary policy (hey fiscal and monetary are different, dammit!!), Money supply (M1, M2, M3..), capital account convertibility, crr, irr, slr, cd, cp, dividend yield, current yield, yield to maturity, fiscal stimulus, green shoots, QE (1 to 100), fiscal deficit, repo rate, hedging, derivatives, oil bonds, inflation, stagflation, sensex, yield curve, relationship between interest rates, inflation and others,  etc.

Accountancy: Balance sheet, Profit and Loss account, ratio analysis, fund flow, cash flow, auditor’s report, auditor’s qualification, return on networth, debt equity ratio, roce, ronw, roa, …etc.

History of the capital markets, equity markets, debt markets, banking basics, etc.

this is just an indicative list – will keep adding…

There are 2 ways how you can use this list.

One: a lot of this you will surely find on www.subramoney.com for sure. You could read and learn.

The easier thing is to keep this list handy in a meeting with your Relationship Manager. If you use all these words with your RM there is a chance that he will not call you again. He will be intimidated. Either he will disappear or offer you simpler products like a an index fund, term insurance, savings bank account etc. Either way your purpose is served!!

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1. Do not abdicate financial understanding: “I trust my adviser” is not always a statement of faith. In many cases I know, it is a matter of laziness or convenience. Do not do it. It is necessary for you to know why somethings are being done, how, and what are the implications.

2. Ask sensible questions: Ask your adviser why certain things are being done. If you do not understand and you do not ask, you might be in trouble later on. Do not assume, ask.

3. Trust your adviser: trusting your adviser should be an exercise that is done diligently. Do not think “he looks fine”, “he dresses well” “goes to the same club”. Also to remind you of what Ronald Reagen (late President of USA) said “trust, but verify”.

4. Do not issue cheques in the name of the adviser: Asking the adviser to pay the premium on your behalf is not a good idea – but people routinely do it, and then repent.

5. Choose your adviser carefully - read Deepa Venkatraghavan’s book ..(What your financial agent will tell you, and you should not listen) regarding about your agent’s lingo (or relationship manager of a bank) and then chose your agent.

6. Ask the agent about conflict of interest: Check who is paying him, how much, etc. – and check out whether that is more than what you have been told.

So these if you ask me are the Golden rules – the real ones!

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No this is not about somebody selling life insurance and mutual fund products, but inside the family ‘advisers’ ever willing to help! They just wait for some ‘helpless’ person and start giving advise. Let us look at some typical victims:

1. Woman recently widowed: The maximum pity in life I have is for this person! Everybody around her (who think they are well wishers) advise her on how to invest.

2. About to Retire: Suddenly inside the house a new set of advisers are born. They may or may not be selling any financial products, but like to generally give gyan about how when their father retired in 1976, he had invested in post office MIS….so now he should invest in a mutual fund MIP – after all both are the same!

3. A kid with a new job: OMG it is his/her money please advise only if you are asked.

4. A person who has a lump sum – could be from a flat sale, an inheritance, etc.

What is the typical advise?

1. Buy a house and give it on rent. The rent will be equal to the EMI..and the house will appreciate.

2. Invest in a mutual fund MIP, it is just like the post office MIS.

3. Invest in a SIP, it is the best investment.

4. Buy some good shares every month, that way you can build a good portfolio. Start small maybe Rs. 3000 a month.

5. Sell all your shares / mutual funds that your husband has left you and put it in a Post office scheme. It is the safest.

6. Take all the money that you have and put it in Hdfc Top 200, it is the best scheme ever. You need only one scheme, so just invest Rs. 20 lakhs in one scheme, in one shot.

7. Sell this current house, it is too big for you. Shift to a smaller house in a far away suburb, it will be cheaper.

…..and so on and so forth…..

all the advise listed is WRONG. WRONG. COMPLETELY WRONG.

why?

a later post perhaps?

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Certified Financial Analyst, Certified Public Accountant, Chartered financial analyst, Certified Financial analyst, Certified Financial Consultant, Certified Financial Adviser, ….surely you do not know to tell a good one from a ‘time-pass’ handed down free ‘qualification’.

All of them can mouth some ‘Hand me down’ mantras like ‘equity is good for long term’, Hdfc Top 200 is a good fund’, take a pension plan…and many of them charge a fee too for giving this generic advice. As long as clients are willing to pay I do not think there is anything wrong in this business model.

How do you differentiate between a planner and a salesman?

Well the planner charges you a fee and says ‘I do not implement’ please buy these products from some one else.

However, the salesman quickly starts selling the product. He makes much more money selling products than by consulting. Even if he/she charged you a bomb!

What are the products that a Salesman (masquerading as a planner) will NEVER recommend to you:

A term plan available on the net

National Pension Scheme (I have other issues with NPS)

Index mutual funds

ETF (if the ‘planner’ is a broker he will still sell other products not an etf),

Self insurance (an IT company with an average age of 27 may not need a group term insurance or a group medical insurance). Even if self insured,  partial (not covering child birth) coverage may make more sense than full coverage. As the commissions are a %age of the premium paid….you know what I mean do you not?

A financial services product salesman earns anywhere between Rs. 1 million to about Rs. 3.5 million as commissions in big metros. Very few ‘REAL‘ planners can hope to net this kind of amount especially at the start of their career. Commission income is far easier to earn than consulting income.

So they normally do a combination of pharma business (selling medicines)  and doctor’s profession (doing a ‘consulting’ business). When you are dealing with such people it is necessary for you to know whether you are talking to a doc  or talking to a chemist. That will bring clarity to the whole conversation.

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Me: Sure..what is it regarding

Caller: a mutual fund NFO

Me: You know my stand…why are you even THINKING of coming…?

Caller: No sir need a favor…

The caller is a small time mutual fund and other financial products distributor who does some general insurance, life insurance, and some miscellaneous work. Since I know him for about 12-15 years, and he does some odd work for me, this conversation went so far.

So he came and said “I need all the 5 names and 5 cheques from your house – Rs. 1000 each in an NFO.

Me: No way how I am investing in one nfo with 5 applications of Rs. 1k…not worthwhile. It is painful to fill the form, issue the cheque, keep track of the application number,….too painful.

He said: Sir I have taken a target at the highest slab. I am getting Rs. 750 per application – this is more than enough to set off the loss that you will make in case there is loss on listing. You need to just sign, my software has all the details and can print out the form – and since you are Kyc compliant, there is nothing to be attached. So Sir, please 5 cheques, 10 signatures…and I will make Rs. 7000….really nothing to lose for you!!

Another successful Mutual fund sales call had been closed. Everybody is happy….so let us all be happy!

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Fee based Investment counseling is the cure to all problems, so say the Learned Men. They ought to be correct, because all channels are also saying it.

Now I met a ‘Good Intentions’ – we will only do what is good for the client financial planning company. They wanted their ‘planners’ to be able to talk to trustees, fund managers, directors about equity returns, mean, variance, goal setting, …..and generally be seen to be far more competent (significantly more as the MD said) than the general relationship manager in the market. So far so good.

They had very little training budget but they had done a cut paste from a leading course on fund management and had done a good job at that.

They wanted to move the ‘sales’ guy from selling to advising – they had enough ppt to prove to me how this will happen over the next 12-18 months. Voila they said “Our xxxx sales personnel will migrate to becoming an adviser”.

I said: “All nice to say things but in an industry where it is much easier to earn sales commissions why would you be in the fee business?”

He said: After some time we will also sell products like life insurance, P M S,….

I was stunned. Is the ‘Fee-only adviser’ dead or was he not born at all?

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So a health / fitness coach can be complemented by a financial coach. Let us look at the similarities.

A fitness coach will expect you to maintain a food log (google gives you many online versions), an exercise log, and a weight log. Obviously your integrity in maintaining the logs will decide on the quality of output that you get.

A financial planner will ask you for all the details of your financial assets (where you are), your financial goals (where you want to go) so that he can choose the route (financial plan).

Imagine you go to a health coach and he decides to be with you all day. Let us see one typical conversation:

Health coach: Your goals of reducing 10 kgs in one year is very good and do able.

Client: Thank you sir, that is what I wanted to hear…

HC: You will have to maintain a few logs

Client: That sounds fine as long as i enter once a month

HC: no sir – 4-5 times a day for the food log, once for the exercise log and once for the weight log

Client: Too much work to do…i guess

HC: Sir before you eat anything you should assume that I am around…and u are asking me.

Client: that sounds ok..not an issue.

Client: Please have some gulab jamuns….my wife just bought them from Jama’s at Chembur Camp…

HC: This is theproblem sir – where does this G Jamun fit into the plan? Towards which goal are you ‘eating’ this GJ?

Client: Oh..this tough

HC: yes sir. I found it difficult trying to stop clients from buying ulips, F n O accounts, 5 credit cards, traditional pension plans, etc. I could not get them to maintain proper accounts of what they were doing, so i turned to Health Coaching. Now i guess I will have to deal with gulab jamuns, chocolates, frito lays, coke, pepsi, chocolates, etc. apart from asking them to go to the gym regularly, drink a lot of water,…etc.

Client: Do you think this will be easier?

H C: well I am an optimist…so i will hope

Client: Do you think I should call you evertime something is offerred?

H C: Sir there is a Suzie Orman show called ‘Can I afford it’ …similarly you should call me

Client: What will you need to know?

HC: what are you eating, what it will do, how many calories, towards which goal is it helping…

Client: Stop! this is painful…

HC: Hmmmm what can i do …I only know financial coaching / health coaching..

Client: Ha ha ha…and you have stopped selling garbage, I believe!!

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1. Even though he pays a good salary,  he cannot hold on to good trainers for long.

2. His revenue sources include gym joining fees, personal trainer charges, selling food / protein supplements, selling accessories like gloves, shorts, water bottle, energy bars, energy drinks, etc.

3. His most qualified trainers are not the most sought after.

4. His most sought after trainers do not tell the truth to the customer for about 5-6 months! Depending on how the relationship is developing they decide to tell him the truth.

5. His most popular (men’s) trainer does not train women at all – even though the women do seek his expertise. The owner thinks this helps specialization, but does not know why the trainer behaves like this.

6. Trainers who get repeat business tell the clients continuously how good they are in THEIR core business -EGO massaging – and not how little they know about body sculpting.

7. The most successful clients are the ones who have a clear goal (the trainer endorsed, reachable goal), maintain a register of food consumed and another register of the workout done.

8. The top trainers give up on clients who cheat on the workout or on the notebook. Simple-  easier to show case successful clients rather than have a cupboard full of skeletons.

9. Film stars, models, television stars, serious amateur sportsmen, small professional sportsmen – are the categories who stick to the schedule as much as possible.

10. Some very aggressive merchant bankers are as aggressive on the bench too! However the trainers insist on the presence of a doc if a client gets too demanding – work outs are risky too.

11. Clients still try to cheat the gym by offerring to pay the trainer (and saving some money, tax, etc.). However all his trainers seem to be loyal to him. He ensures loyalty by splitting the total collection into 3 parts – 1/3 for the gym, 1/3 for the assigned trainer, and 1/3 for the ‘gym pool’ – this is split on a quarterly basis amongst all the trainers. This helps the junior trainers get something – only a trainer with 3 years experience is allowed Personal Training.

Check each of the above out…it can all be implemented in a financial planning business too!!

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