Financial Planning

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(No Transcript)
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Personal Financial Planning
Aniruddha Bose Director Business Head FinEdge
Advisory Pvt. Ltd. www.finedge.in
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What?
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How?
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The need for Financial Planning
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Products (and conflicts of interest!) add to the
confusion 
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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

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Financial Planning leads to sustainable wealth
creation
TRUE, MONEY CANT BUY HAPPINESS
But its so much more comfortable to cry in a BMW
than on a bicycle!
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Who needs it?

• Age 35 to 45
• Planning for your childs education
• Creating an emergency fund
• Starting a retirement plan
• Increasing your standard of living

• Age 45 to 55
• Planning for your childs 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

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Is Financial Planning simple?
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But then again
so is losing weight! Weight loss simplified
Eat Less, Exercise More!

Simple does not always equal Easy!
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FP Concept 1 Risk Profiling

• What is Risk Profile why is it relevant from an
  FP standpoint?
• Two components Risk Tolerance and Risk
  Appetite Whats 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?

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FP Concept 2 KYP Know your Priorities!
Vacations New car New house Loan
Prepayment Increased Living Standard Childrens
Education Retirement fund Emergency fund
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FP Concept 3The 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

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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!

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FP Concept 4 Hyberbolic Discounting
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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

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Compound Interest vs Simple Interest An
illustrative exercise
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FP Concept 6 The Financial Planning Pyramid
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FP Concept 7 Goal Planning
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Exercise Goal Planning
Income Expenses Savings
Change This To
Income Savings Expenses
Source Rich Dad Poor Dad
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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

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What does a Financial Planner do?

• First and Foremost Acquires a base of clients
  i.e SALES
• Spends time asking questions and understanding a
  clients current financial position
• Understands and prioritizes clients 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

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www.finedge.in servicedesk_at_finedge.in 011-450728
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