Why Comprehensive Financial Planning

Why Comprehensive Financial Planning

ByViplav Majumdar

This question comes in mind of everyone. Since ages, successful people have been planning professionally and they succeeded in their life. Now people need to take services of professionals. Growing culture of nuclear families is pushing families to take the services of professional Financial Planners. Industrial age is over, when Government used to take care of the individuals even after Retirement. Now you have to sponsor all the responsibilities of your life on your own.

Factors which raise the need of professional Financial Planning

  • Complex Investments
  • Nuclear Family
  • More years of education
  • Late Marriage
  • High cost of life Style
  • Less working years
  • Kids regular and higher education
  • Self-Funded Retirement
  • Increasing Life Expectancy
  • Increased Medical Facilities

Complex Investments

Earlier people had less choices to invest and most of the people used to invest in real assets like Gold, Property, and Land etc. Now the management of theses real assets have become a liability and people prefer to invest in financial assets. Unfortunately these are very complex and it’s nearly impossible for an individual to make returns in a proper manner regularly from investments without the help of professional who is competent in handling debt funds, Equity Shares, Fixed Deposits, Mutual funds, Life Insurance Policies, PPF and many more. You may be thinking what is the need of competence in handling fixed deposits and small savings. The return you make on paper may be faulty as you make return on paper and you actually pay Tax and spend with inflation, which is not taken care in calculating your returns. In Financial Planning this is taken care and your life is planned with Real Returns. This is important as you earn from your wealth for life long.

Nuclear Family

Earlier joint family system supported all working and non-working members of the family, two or three persons were earning and ten to fifteen individuals were financially dependent. Similarly the domestic works were performed by other major members of the family and the work load for children, domestic work, indoor, outdoor utility works were distributed among different family members. Now a nuclear family comprises 3? 5 persons and they have to avail everything on payment.

More years of education

Earlier a person used to start career at the age of 18 20, now two professional degrees are common. Unless an individual has Master’s degree, he/she is not considered as eligible candidate for any good position. So there is delay in the start age of career. This puts pressure on the financials of family in a big way, although education loan is available.

Late Marriage

Since the start of career is delayed in comparison of earlier trend, the marriage also gets delayed. Once an individual male or female completes education and starts career, he/she wants to get settled in the job market in 2 to 3 years’ time. They take time to enjoy their life in their own way before getting married, so the individuals are getting married near the age of 30. This late start of family life has many negative impacts on financial future of the new family.

High cost of living life Style

Today we believe that the fight to survive is over, at least for middle class. We observed in the budget of families that almost every family has a meagre amount of budget to spend on grocery. The main cost is of life style. Young Indians are not ready to compromise in any manner and we need all the luxury which we heard that only rich could afford. Every family is in the race of increasing life style year on year, this impacts the finances negatively. Once you spend to create a certain life style and later you have an increased house hold expenses every month. So it puts you in pressure in long run, as only you have to fund your life style in non-working years. We should not forget inflation, which will make everything expensive year on year.

Less working years

In present market, the companies are being managed professionally and every company wants profits. Salary is a big expenditure, every company wants good resource at less price, new competent employable candidates are always available at higher level of pyramid as there are lesser number of vacancies at higher positions. We believe that most of the people would not reach the retirement age of their company. More over the rising life expectancy gives us the situation where we have more non-working years and less working years. Earlier we had more working years than non-working years.

Kid’s regular and higher education

Regular education from play group to class 12 has become highly expensive and if we talk about the higher education, it is required as minimum qualification to be eligible to start career. It takes roughly one third of your life time finances. The cost of education is increasing at higher rate than inflation. As this is important for kid and parent both, this goal cannot be compromised, family should plan this efficiently so they need not compromise with the type of education at later stage.

Self-Funded Retirement

As we need to fund our life from the age of 50, we have approximately 30 non-working years. Since life expectancy has increased, we need to plan this efficiently. In this period we want to enjoy our life with our passion and grand kids. Earlier it was sponsored by Government, now no social security is there. So you need to plan this part of your life. This can be done by planning your retirement from initial days of your career, those who are late; this is the right time for retirement planning. In planning retirement one should plan with inflation, medical requirements, and gifts to grand kids, vacation and life style.

Increased Medical Facilities

Now the medical facilities are developed and are at a very advanced level. Everyone wants to be healthy and fit, this attracts cost at a higher age and facilities like Angioplasty, Transplants give you another life. This amount will be funded by you at higher age when insurance premiums will be so high that people tend to avoid it. So we need to be prepared for such medical expenses. All these factors push a family for professional financial planning. Planning only one domain of life in isolation at cost of other events of life is not desired. Financial planning is the process to achieve your Financial Goals within time, in your desired manner. This process helps you in maintaining balance among all the priorities of your family. This process involves

  • Risk Management
  • Cash Flow
  • Self-Funded Retirement
  • Child’s Funding
  • Tax Planning
  • Buying Home
  • Repayment of Home Loan
  • Planning beneficiaries after you

So you should keep your financial goals in mind and take help of a professionally qualified financial planner for making your life financially independent.