Financial planning

2. Personal Financial Planning
Aniruddha Bose
Director & Business Head
FinEdge Advisory Pvt. Ltd.
www.finedge.in

3. What?
Determining
financial goals &
objectives
Understanding
purposes &
priorities in life
After considering
resources, risk
profile and
lifestyle, detail a
realistic plan to
meet those goals
Periodically
reviewing the
Financial Plan

4. How?

5. The need for Financial Planning…

6. Products (and conflicts of interest!) add
to the confusion…

7. Why?
• Peace of mind
• Compounding Effect – long term returns
• Right product for right reason
• De-risking
• Balancing short term and long term
• Goal achievement
• Money saving (loans, taxes, etc)
• Preparedness for emergencies
• Wealth creation & improved lifestyle

8. Financial Planning leads to
“sustainable wealth creation”
TRUE, MONEY CAN’T BUY HAPPINESS…
But it’s so much more comfortable to cry in a BMW than on a
bicycle!

9. Who needs it?
Age 35 to 45
•Planning for your child’s education
•Creating an emergency fund
•Starting a retirement plan
•Increasing your standard of living
Age 45 to 55
•Planning for your child’s marriage
•Prepaying loans
•Making provisions for medical expenses
•Accelerating your retirement savings
Age 55 and above
•Consolidating your investments & preparing for retirement
•Increasing your provisions for medical expenses
•Allocating funds for social & leisure purposes

10. Is Financial Planning simple?

11. But then again…
=
… so is losing weight!
Weight loss simplified – Eat Less, Exercise More!
“Simple” does not always equal “Easy!

12. FP Concept #1: Risk Profiling
• What is Risk Profile & why is it relevant from
an FP standpoint?
• Two components: “Risk Tolerance” and “Risk
Appetite”… What’s the difference?
• Why is effective risk profiling generally
considered the most important aspect of a
Financial Plan?
• How does Risk Profile influence investment
returns and the Financial Plan of an
individual?

13. FP Concept #2: KYP
“Know your Priorities”!
Financial
Planning
Wealth
Creation
Achievement
of your
Financial Goals
– your
“priorities”!
VACATIONS
NEW CAR
NEW HOUSE
LOAN PREPAYMENT
INCREASED LIVING STANDARD
CHILDREN’S EDUCATION
RETIREMENT FUND
EMERGENCY FUND

14. FP Concept #3:
The two “Magic Ratios”
• Reserve – Surplus ratio:
the percentage of your
monthly inflow that you
do not spend each month
• Savings – Surplus ratio:
the percentage of the
above monthly surplus
that you save/invest
systematically and in a
disciplined manner

15. Why is financial planning difficult?
(Exercise… Volunteer required!)
• Would you rather receive Rs. 100,000 in a year or Rs.
110,000 in 13 months?
• Would you prefer Rs. 100,000 today – cash on the table – or
Rs. 110,000 in a month?
• The introduction of ‘now’ causes us to make inconsistent
decisions – this phenomenon is called ‘Hyperbolic
Discounting’
• Immediacy magnetizes us!
• The capacity for delayed gratification is a reliable indicator
for future success (Mischel, “The Marshmallow Experiment”,
1960).
• The instinct to “defer” savings for “later” – instant
gratification
• Patience & discipline are indeed virtues!

16. FP Concept #4:
Hyberbolic Discounting

17. FP Concept #5: Compounding
• Would you care too much whether the rate of return
on your savings is 7% or 10%?
• Do you stop to consider how the length of saving really
affects the goal planning dynamic?
• The fact is that if you did, it would make a big difference
to your wealth as time progresses
• The benefit from compounding arises primarily from
the fact that income keeps growing the principal to
generate higher absolute returns each year
• Higher rates of return or longer investment time
periods increase the principal amount in geometric
proportions

18. Compound Interest vs Simple Interest
An illustrative exercise

19. FP Concept #6:
The Financial Planning Pyramid
Speculation
Trading of Equities,
Forex, Commodities,
Land Etc
Investments
Stocks, Real Estate, Mutual
Funds
Savings
SIP’s, RD’s, Endowment Life Insurance
Protection
Debt Reduction, Life Insurance, Health Insurance &
General Insurance

20. FP Concept #7: Goal Planning

21. Source : Rich Dad Poor Dad
Income – Expenses =
Savings
Income – Savings =
Expenses
If I am a 35 year old planning to retire at 60 with
an inflation adjusted annuity equivalent to Rs.
________ per month in today’s terms, I need to
put together __________in 25 years
• Rs . ______ invested per month today will give me Rs. N
Lacs after 15 years at ______ ROIC
College education in India is inflating at ___% P.A.
If I require Rs. ____ Lacs today, then after ___
years I will require around ____ Lacs for the same
quality education.
• Rs . ______ invested per month today will give me Rs. 2.5
Crores after 25 years at ______ROIC
Change This To
Exercise: Goal Planning

22. FP Concept #8: Delay Cost
• Would you care too much whether you
start saving today or a year later?
• The cost of delaying the start of a savings
plan can be more than you think!
• What do you feel is the cost of delaying the
start of your retirement savings of Rs. 5000
per month… by one year?
• Answer: Rs. 46.6 Lacs!
• This is an example of “Delay Cost”

23. What does a Financial Planner do?
• First and Foremost: Acquires a base of clients… i.e SALES
• Spends time asking questions and understanding a client’s current financial
position
• Understands and prioritizes client’s goals/ needs and plans how to best allocate
their cash flows
• Sets realistic expectations with client and helps puts finances in perspective
• Helps client plan out and manage various financial risks
• Facilitates investments
• Regularly updates and discusses portfolio progress
• Manages client relationship effectively to ensure high degree of loyalty and
referrals
• Revises the financial plan as and when required
• Plans taxes and helps clients save taxes
• Rebalances portfolio if required
• Acts as a trusted Advisor and confidante – “one stop shop” for all financial advice

24. www.finedge.in
servicedesk@finedge.in
011-45072800