World football fans are always fond of Number Ten for success and glory. Likewise, the term ‘Financial Planning’ is significant. In this term, ‘Financial Planning’, it consists of ten most important aspects that are rather hidden. They are most valuable to make the life itself successful in terms of achieving the ambitions in life. In order to get a proper perspective, we approached ten financial experts who gave ten most important techniques and brought to the fore ten ardent followers who have since become successful in their life. In this foregoing essay, we are going to see those ten key aspects:-
1.Planned life is a palatable life:-
U.N.Subash highlilghts the importance of planned life. He says that nowadays people are fairly aware of this concept and they plan their life from the beginning. He mentions about his client Rakki who had approached him for some investment plan at the age of 30. Rakki’s mental plans rather perplexed Subash and whatever Subash gave as tips, Rakki has been implementing practically. From his monthly salary, he has earmarked his funds for education and marriage of children and also for his post-retirement monthly expenses.
Obviously, in the life of Rakki, he need not depend on anyone’s support or financial help either for his children’s education, marriage or also for his post-retirement compensation. Hence planning is rather essential.
Salem Krishnan is an entrepreneur who initially did not care about future planning. He kept on re-investing whatever he earned in his business itself and expanding. A friend of his helped him understand the importance of financial planning and accordingly Krishnan had approached a financial advisor and as per his advice, he started saving for his children education. Subsequently, he started saving for his post-retirement period also since he was not otherwise protected by PF or gratuity amounts. Now Krishnan is happy and tension-free in his life as he has protected his future expenditure.
2. Instant Relief during Emergency Situations:-
Financial Advisor S.Bharathidasan explains that whether one saves money for economic reasons or not, one has to save money for emergency situations which may arise anytime. For example, the bread winner of a family might lose his job or leave his job suddenly due to unforeseen circumstances and at that time, if he has saved some money it would be of timely help. That is why Bharathidasan advises that a family person should make it a point to set apart at least 3 to 6 months of his earnings for any such emergency situation. Bharathidaan further indicates that this amount should not be kept in the form of cash but should be invested in liquid mutual fund so that it would fetch a compound interest of around 7 to 8% which is like a bonus amount.
Cheyyaru Mani is the person who vouchsafes for the above point. He is a mediocre businessman and is able to get normal profits from his business. However, he has invested a portion of his profit in his savings account for any emergency purpose. He is confident that he is prepared to face any adverse situation in his business because of this financial strength.
3.Loan is inevitable. But which loan is the right loan?
Rajasekaran, one of the financial experts opines that in modern days people work only to pay their EMIs for the loans already borrowed by them for various purposes whereas people used to work in order to save money in the past. He further says that all loans are not good and justifiable. If it is for mere consumption purposes, he advises against the same. But at the same time, if it is for education or home , it is permissible because the purpose is right. He strongly feels that one should not go in for loan against credit cards, personal loans and private loans unnecessarily.
Madhivanan of Pondicherry is a classic example to prove this point. He is basically a vendor and loan for rotation is but unavoidable for him. However, unless it is absolutely necessary for him, he will never avail of any loan anywhere. He is very clear that if the loan, thus borrowed is for the purpose of his growth in any manner, it can be permitted. If it is a barrier for his growth, it should never be encouraged. Earlier he used to avail of loan against credit card which was subsequently destroyed and returned to the concerned bank by his wife.
4.Planning is essential not only for saving but also for spending:-
One more Financial expert Ijas Hussain offers a different advice altogether. He categorically says that one should have perfect planning for spending from his earnings. Ideally he says that one should set apart minimum 20% of his salary for saving and only the balance 80% is meant for spending. He reasons out as to why one should plan for spending also. He says that the cost to be incurred now on a particular asset, would be double or treble, if incurred after ten years and hence spending must also be equally planned by an individual.
Subramanian from Perambur confirms that because of his habit of planning for spending, he is practically very conscious of spending each pie from his pocket. He proudly declares that the first allocation of money from his earning is only for saving. He confirms that because of his planning he is not affected by impulsive spending at all.
5.Insurance is necessary:-
The awareness of insurance policy among the youth is quite appreciable. Policy Consultant Abubucker claims that his client Murugan had taken an term plan life policy worth 15 times of his annual income and unfortunately he lost his life suddenly. The compensation from Insurance company against his term insurance was a great support to the deceased family to get the same monthly income . Again another client Raghu had taken Family Floater Insurance package covering the medical expenditure for the entire family. When his wife had to spend a huge sum on medical ground, this policy was of great help to the family. In as much as such emergencies are unpredictable, one must protect by means of insurance policy.
A.Anand of Madurai says that majority of people used to think that insurance is an investment , whereas it is only for protection, that too, for the family upon the demise of the insured. Similarly, mediclaim policy is also essential for the entire family. He admits that he has taken adequate insurance policy with a view to protecting his family against any emergencies.
6. Distribute your investments to enhance your earnings:
Another consultant Padmanabhan highlights the fact that one should not save and put all his hard-earned money in one investment source to avoid risk; rather, he should be intelligent enough to divide and invest in a few different sources such as a) Equity; b) Fixed income debt instruments and c) gold under the concept of ‘Asset Allocation’. He compares the same to the practice of horoscope matching of boy and girl before marriage. When one starts suffering it would be a period of happiness and satisfaction for the other by virtue of his horoscope so that both of them will be able to manage the situation of crisis. If pain comes commonly for both it will be difficult for both of them to face at the same time. When investment is distributed in various asset classes, if one fails to give returns, other sources may help.
Chinna Krishnan of Muscat claims that though he has invested more in mutual funds, he has also invested in stocks and Gold. Even in mutual fund, he is investing different types like equity based, debt based and balanced funds. He always looks up to the advice of his financial consultant since it involves more technicalities in selection of mutual funds. By distributing his investments he is able to avoid risk and at the same time able to get good returns.
7. Avoid emotional decisions while investing:-
Be it share market transaction or mutual fund investment, we must avoid knee-jerk reaction in investing our hard-earned money without any planning and thinking. When we become emotional, we tend to lose our balance of mind between intellectual and emotional approach. The decisions that we take when we are emotional may not be fruitful according to the Financial Consultant.Radhakrishnan.
Investments should also not be done with haste. Haste is always waste! The factors responsible for such hasty actions are our own relationship or friendship which will force us to take on-the-spot decisions sometimes. This must be totally avoided. He means that we should not give importance to any kind of investment in unauthorised investment schemes like Ponzi schemes just because we are influenced by our relatives or friends.
Suresh of Vadapalani cleary shares his personal experiences in this regard. He says he never accepts any suggestions put forth by his relatives or friends because they may not be practical but would only induce one to invest without any logic.
8. Analyse before Investing:
Consultant Seshayya strongly advises that we must examine the pros and cons of any investment that we make. All regulated investments by Govt authorities are good to invest but we must take reasonable time, collect information regarding the company or the market particularly in terms of risk involved in that. We must get an idea before hand as to how much risk we are expected to take while investing either in mutual funds or equity as the case may be. When we take decisions like this, we are able to understand the logic behind our investments. Instead, if we proceed simply based on our relative’s or friend’s recommendations, we will face unwanted problems including on our mental and physical conditions. However, Seshayya observes that youngsters do take necessary precautionary exercise before making any investment in their life.
Saradamani De of Chennai shares a very clear thought on the above point. She mentions that she would approach financial consultants first for any kind of investments and she will not stop with that. She will find out lot more of details about the company, its performance in the past and present, its future expansion plans, financial status etc. from their past records as well as website and then only she will make the investments accordingly. She shares that if she still has any doubts, she would again approach the consultant for necessary clarification. In this process, if she meets with loss, she will be still bold enough to bear it and take requisite remedial action to minimise the risk factor and make up the loss eventually.
9. Don’t delay investment decisions:-
Ramakrishnan V.Nayak highlights the importance of starting investment early in life. He says that we must start investing as early as possible in order to make it simple, smooth and successful. He gives a practical example. If a person chooses to invest in mutual fund SIP @ Rs.3,000/- per month for 30 years and expected return is 12% p.a.from his age of 25, he will be able to reap a consolidated sum of Rs.1.04 Cr. At the same time, if he chooses to invest a sum of Rs.4,500/- for a period of 20 years from his age of 35 at the same return of 12 percent , the maturity value of his investment would be Rs.44.51 Lacs only.
Early bird catches a worm:-
V.Balaji is the early bird. He says he started investing in mutual fund right from his first month salary about 17 years ago @ Rs.2,000/- in SIP. He gradually increased the investment as his salary went up. He says now that investment has been getting him 20% annual return. He further says that even though he has taken back from that accumulated fund for some purpose or the other, he has never stopped his investment which is now Rs.5,000/- per month. This apart, he invests Rs.2,000/- per month for his daughter’s future. In short, saving has become habitual for Balaji.
10. Review of Portfolio is a ‘must’:-
Financial expert, Ramesh Bhatt strongly advocates that all the above are not enough; rather portfolio review must certainly be undertaken by an individual. That should be periodically done. He says that if the period of investment is 5 years or less, the portfolio review should be done once in 3 to 6 months and if it is beyond 5 years, one can review once a year but review is one of the most essential exercises that should not be neglected. If we do the periodical review, we will be able to track our investment and return properly; or else, we may face loss of time as well as money.
Chidambaram of Thiruvannamalai has substantial investments and his short-term demands are also equally more. Therefore, he undertakes portfolio review once in six months systematically and based on the results, he makes his further investments as well as he takes necessary insurance policies for him and his family. He is confident that though he has to spend some amount on doing the periodical review of his portfolio, it has certainly resulted in steady increase in his returns with less risk as well.
Thus we have so far seen 10 key features of financial planning. It would not be an exaggeration to state and conclude that if one follows these 10 tips in life, his life would doubtless be healthy, wealthy, prosperous and peaceful.
(This article originally appeared in Nanayam Vikatan is now reproduced in English by P S Ramamurthy)