Second Career - Think Well about it

Sometimes it becomes difficult over time to let go your work although we might not be fit as our young days to work or sometimes it so happens that we get involved to fulfil our passion that we don’t mind accepting a low paying work for it. We find it very empowering to help someone or tender our services for well being of our society till we are capable to do so. So, today for such clients we would like to render some knowledge for their personal finances while working towards their second innings or passion. 

Plan well in advance – In case you are dissatisfied with your current work and want to change your career, plan well in advance. While planning take care of the following points:

a) Make note of your daily expenses to understand the required funds during transition period.

b) In case of any goal in short term, see that you do not disturb funds allocated towards it.

c) Ensure that you have reduced or zero liability when switching career goals.

d) Understand well the financial support that would be made available from the new job.

e) Do not disturb the kept aside contingency funds. 

Reduce Your Dependency – It is necessary to reduce the dependency on your professional income and depend more on your investment income. i.e. a business man may not retire from his business but it can be made possible to shift the concentration of his monthly income from business to investment income. Some of the popular modes are as follows:

a) Transfer Fixed Deposits from Cumulative to Interest Payout.

b) Convert Mutual Funds from Growth to Dividend Payout mode.

c) Tax Savings Investment should be made in least locked in instruments and not in long term products.

d) Start withdrawing interest earnings on your Business Capital rather than reinvesting it.

Give yourself a time limit – Set across a time frame to ensure that you do not miscalculate your expenses back up. In simple words, ensure that if you want to give a fixed time to experiment with your work/ passion in terms of monetary requirements. If the change is going to permanent, then it is recommended that you bring your family into confidence before you take your step.

Plan every step well in advance to avoid any impromptu or hasty decision.  


Regards
Saarthi Financial Planners
www.saarthifp.com

Why hire a Fee based Financial Planner ?

Last week our article on Need for Financial Planning gave us mixed responses regarding the understanding on the subject. Although, what we can summarize is that major of the readers said that they all have made some arrangement for the future, however none of them understood which investment was appropriate for them. They also mentioned that they made all these decisions by themselves and never had any interference / help from anyone. They never felt it necessary to have someone else making a road map for their goals. Even, if one agrees to have an outside advice, they never paid a price for it.

So, why do we stress on need for having a plan and that too, designed by a financial planner. What is the expertise of a planner that sets him apart from the rest of the so called advisors?

Today, we are here to discuss what a Financial Planner can do for you that others would not even think of doing.

1. Ask - Plan – Evaluate – Invest:

What we are used to: A usual investment decision follows the pattern of surplus of funds, available avenue of investment and maximum tax benefit. This could even mean taking a rebate from your servicing advisor or agents.

What a Financial Planner can do: The planner follows the route of asking your goals/ dreams/ aspirations of your family- giving it a value –fulfilling your need – working on your priority – matching tenure of your goal and investment. If it means, giving you nominal tax benefits then let it be. It has to make you meet your goal what you saving for.

For a planner his fees are his earnings and he seeks no other monetary benefits from suggested investments to his client. It is inclusive of advice, revising and reworking, revisiting any investment mistake or even stops the client from making any wrong financial step. The plan discusses investment at the last step to implement the discussed strategies.

2. Review & Rework

What we are used to: Any investment made on recommendation promises least possible losses and many other such promises although with a shelf life for itself. It is not possible to determine if they would work in long term say even for more than a year. Such profits earned can be rightfully termed as speculation and not as Investment. So, is it wrong to earn such unwarranted amounts? No, if we can be reassured that the strategy will be successful to save enough for your goals and made available at the time you need it.

What a Financial Planner can do: A Financial Planner studies your goals and suggests any strategy; he monitors it for the client and gives his advice, in case if it needs any tweaking. The plan always remains dynamic, the goals can also be revisited if the client’s situation changes. It is only when you have a documented plan in place that you can work these changes.

3. Qualified to understand your Finances

What we are used to:  A family friend working for an insurance company or a real estate broker or a stock broker knows the best about his industry and products. He knows when market is going to boom and when it won’t. He has been right in 90% of recommendations given in the past and even made up for any losses he made. He assures his proactive working in case if anything goes wrong. So, he has always been your true guide.   

What a Financial Planner can do: Let me explain with an example what a planner can do. We all mostly use our phone GPRS to travel in new places or unknown places right? We use it to search the nearest possible by-lane to reach our destination. But when our GPRS says “Destination arrived” do we simply get down of our vehicle? No, we don’t. We ask some local around for the more exact location or sometimes ourselves venture to see if it the exact point. Similarly, your planner like your other advisors provides you the route but as a personalized local effort takes a step forward to study if the suggestion matches your need. If not, what are the available alternatives? Is this the only way to grow or in future you can take an alternative in future.

So, how can a Financial Planner help us in every aspect? To be a qualified Financial Planner, every planner studies about the entire financial market including taxation and application of the same for his clients’ welfare. He studies about allocation of client’s monetary resources in best possible manner, studying his needs, understanding and designing of his retirement plan, his life risk management and also to plan about the unseen contingencies.He applies the behavioral science to understand the appropriate financial logic to your goals. He sees your family as his priority while making a plan as you would do when you plan.

Regards
Saarthi Financial Planners
www.saarthifp.com

          

Financial Planning - A must activity for all

People usually deny taking any step which requires them to share their personal finances with a third party especially for payment of fees. We share this concept with various of our colleagues and friends about the hidden benefits of having a financial plan over an impromptu action. Let us today discuss the need for planning for Personal Finance.

What is the Concept of financial Planning all about?

Financial Planning is about allocation of limited resources to achieve your financial goals. It is not a one time process but an ongoing activity which needs to be taken every time, there is a change in your financial outlay. 

To understand how does actually does financial planning help to achieve a better perspective - Let us look at a two different situation to decide which one you fall into.

I have a plan which helps me	I don't have a plan so
Goal Identification We identify what are the different things we want to achieve as a family and how much do we need to save for it financially. It helps to understand what are our family goals or unfilled aspirations.	Random Goal Spending I make my decisions single handedly and think I know who needs what in my family. I meet my expenses in the near term considering the cheapest option available with me. I don't consider what are the charges/penalties I am paying in it.
I understand my Financial Worth I know my asset value from time to time. I know what are my total assets. My family is aware of my all savings and ownership. I also understand I have liabilities to be fulfilled before I make new purchases.	I don't know If I own or owe more I usually make calculations when I need a huge amount for some major expense/purchase. My CA has all transactions recorded for the financial year, I don't know much about its value.
I plan my taxes Not only based on my income do I decide, what kind of amount of tax instrument I should invest in, but also my goal duration plays an important role.	I just manage to invest for my deduction slab I take my tax saving investment decision usually in last quarter of financial year depending on the TDS deducted till then. I usually buy a one time premium policy to fill in the gap.
I can focus on bigger picture I am already saving for my listed goals and I am very well aware of what amount still stays with me to splurge or spend on my life planning goals. I can spend on my dreams.	I am unsure about my next move I have just started a new EMI and I am unsure if I actually can afford to save anything. I can't think of any thing till I have completed my loan.
I am sure of my future I have secured my future, I am managing well my today, I am ready to face any unplanned uncertainties.	Let me just think about today I want to go on a holiday but I am not sure if I can go in next few years. Let us see if I can ever save up more to go for that break.

Planning is not meant to restrict your movement but to guide your steps. It is a informed move taken rather than uncontrolled maneuvering. So, why do we shy away from planning. It is not an optional thing but a must for all those who have numeric values to their goals.

Regards
Saarthi Financial Planners
www.saarthifp.com

Calculate the right Returns on your Investments

Return on investment calculation is a useful exercise to determine whether the desired return from our savings can be generated or not. We come across many terms which confuse us regarding the real picture on our investment. So, today we would discuss some of these common returns calculated.

Absolute Return

The absolute increase in asset over period of time is known as Absolute return of investment. It is usually described in terms of percentage. It does not consider the time gap in between.

Suppose you, invest Rs 5000/- in 2005 and redeem in 2008 at Rs 20000/-, the absolute return is 300 times or 300%.

Simplified Annualized Return

It is similar to absolute return only that the required returns are given in terms of annualized return. It is a very rough estimate to calculate the return. Although, it is not wrong but can many times lead to very unrealistic analysis like similar growth in all invested years.

So, in the above example, if over 3 years the absolute return is 300% then, the simplified annualized return is 100% pa.

Compound Annual Growth Rate (CAGR)

CAGR gives annualised returns grown over time considering a rate, which would have been achieved if the investments have grown over steadily. In reality, the actual growth is not steady it fluctuates. It is best suited for long term investment especially for mutual funds which have fluctuating performances and an average on this compounding helps us to determine whether our investment is really going to meet the desired goal target.

Let us consider the same example, in three years the CAGR is 58%. This means that my investment grows at 58% pa.

Internal Rate Return (IRR)

IRR is the rate of return which determines whether the actual investment has generated sufficient returns in comparison to lowest cost of capital. It is helpful when we have multiple investments made at regular intervals or received interim payments. This return are more suited to study insurance returns considering that many times premium paying years are followed by repayment like in annuity or endowment. Also, the appreciation of a stock especially a high dividend yielding stock held for long time can be rated on this parameter rightfully.   

Real Rate of Return

Any return received on asset should be rightfully adjusted or corrected for the influence of price change or inflation on it. This will give you a correct picture on a realistic valuation. Suppose you assume, that the expected return on your investment is 10% pa and the general inflation is at 7% pa, then the real rate of return you earn on this asset is 2.80% pa. So, it is always wise to make a right choice.  

Some other things that influence on our returns

a) Inflation – As mentioned above, it is necessary to earmark the returns against the inflation to understand if we are earning better than existing inflation rate or not.

b) Benchmark – It is necessary to earmark the performance against a benchmark to adjudge the performance with the overall economy movement. It can be any Index earmarking. A standalone performance is not much of benefit to anyone to make a decision. It is necessary to compare it with the ideal benchmark.

c) Relative Return – It is a peer comparison to understand if the particular investment matches the performance of other variables/ companies working in the same environment.

So, we recommended that do not get blinded by huge growth in an investment because it is compared with time value of money, fluctuating returns and a lost opportunity to invest elsewhere to earn better.   

An example to summarize our concept on return on investments.

				Returns Comparison
Purchase Year	2010	Sell Year	2015	Absolute returns	Annualized returns	CAGR	IRR
Purchase Price	237	Selling Price	799	237%	47%	28%	26%
Qty	100	Qty	100
Value	23700	Value	79900
		Dividends earned during the years	25,050

 

Thanks and Regards

Team

Saarthi Financial Planner

Email: saarthifp@gmail.com

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