Hazards of delaying Financial Planning

        Delay in starting financial planning is a common thing we face across in our profession. We have multiple times seen a uncertainty on face of people when we make them understand the need to plan and to engage a planner for same. We are here to share a few examples of how people  deny financial planning to save a few paise and spent lakhs of rupees on their callous attitude.

        Scenario 1 - Mr. Shastri, septuagenarian was our family friend and a regular follower of our blogs. On his coaxing, his son met us to discuss his financial problems. His son was  a well earning individual but had no time to invest his savings. He stacked up his money in Bank Fds and paid hefty tax on interest earned. It was a common problem among all busy executives. Also, he had insufficient life cover and had no health insurance for his family. We recommended him a revised asset allocation as per his goals and a re look at his insurance portfolio. He was not convinced whether there could be anything more secured than his FDs. He asked to call after a week after he thought well over it. A month passed after which he called us to tell us that a routine health check up is now showing high sugar for his wife. He wants to take now a health cover for her and is wondering if it is possible to get it now. Also, he had no liquidity to pay for her emergency hospitalisation. Not sure how to raise his money, he had to take a personal loan to pay it off. We wondered how simple his life would have been if he had not thought too much on taking up financial planning.

        Scenario 2 - Aakash was a like a younger brother to me, he would ask me before he took any major financial decision. So, I gave him a financial plan to make his decisions quicker. He was excited to have his own individual plan ready in early twenties. However, the problem was that he was always distracted by peer pressure. He wanted to have the best things for his family and in process got derailed from his plan implementation. A plan without implementation is as good as no plan. In spite of saving 60% of his salary after home expenses, he has zero investments. He made some random expenses and got some unwanted loans,which made his life burdensome.

        Scenario 3 - Mrs Sharma, a maths professor, was a widow, looking to secure her retirement as she didnt want to depend on her children. She had opened a trading account with her local broker, who would give her multi bagger tips for sure profit. She was making good money in it and was sure that she will be safe even in her retirement this way. When we asked her to stop her short term trading and make a plan for long term, she would snub off saying she did her research well and the broker was old trusted friend. Last week, she called me asking if I could give her some tips in this declining market as she lost a lot of money with her old friend. ;-) I reiterated my point that investments without a plan are not worth taking a chance especially for a retiring individual. Better pay your annual fees rather than loosing your capital.

        These were few cases where Financial Planning was ignored considering it to be a cost or stale paper record. It is a wrong notion to avoid planning and also to plan but not implement it. Plan today to avoid a Sorry Tomorrow. Reason for avoiding it can be many but we need only reason to do it- i.e. Love for our family.

Sale in Sensex

The current fall in Sensex indices was seen by many market investors as a blurred memory of 2008 decline, where all the bets including good blue chip companies were falling flat. It is due to this reason that investors are wary to make any movement. As for us,we received calls from many of our clients and long term investors if they should do anything, in particular should they square off their position in line with the deteriorating market situation.

Keeping in mind those calls and other frantic news, today we would like to reiterate a few things on this situation. Let me explain you with a simple example, we witness at every season end a general sale across all brands. It could be either in electronics, clothing or even in some services. It shouts discount as high as 50%. So, what do we do when we read such news? Do we worry that something is amiss in this company that is why this sale or do we think that the item on sale is defective. We do not consider buying it. No, none of these things cross our mind. We take it as a good opportunity to buy some of our favorite brands which were otherwise expensive to buy. Even in sale we select as per our preference. Although, if the deal is really lucrative we might even get some average things or not so important things in our buy.

Similarly, consider the fall in market as something bound by external forces, although not necessarily seasonal but bound to happen. It might be due to bad company performance, declining interest rates or bad credit market. Any if these or other factors accompanied by strong external policies, could be the reason for falling stock prices. If the entire economy is affected by any particular announcement like GST bill or FDI investment in any particular sector, it is futile to distrust your investment.

So,as we have maintained in past, the only probable action in this lowering market is to buy. Although, this is our personal generalized advice, we maintain that buying in dips always helps to average out the cost price. Also, it is necessary to identify the lows from your purchase price. Don't try to ape the action of the short term traders, who only fuel the decline in stock price. 

Remember investment is a long term game and should be always viewed for over a period for comparing. SO, don't be wary of these small waves in the sea of investment and continue your journey with confidence and discipline.

Savings accounts not so simple

        I remember some few years back ,one of leading bank had pioneered the concept of home based savings account opening with a simple utility of a tab. No need to send any physical form or photo, the relationship manager  captures all details on his device and only asks for a photo identity proof. Boom you have opened a new savings account. Along with it he hands you an account opening kit containing rules, charges and a default debit card (although not personalised) and it's security pin.

        So simple that it seems opening an account , we slowly realise that we have dug a hole for uncounted charges and fees. These days banks tempt us with variety of savings account designed in a way to suit our needs. Some of the popular types are:

1. No frills savings account
2. Senior citizens accounts
3. Women special account
4. Kids advantage account
5. Zero balance account

        The main purpose of any savings account is to compliment hard cash in hand. However at times, the minimum required balance forces us to limit our usage . Hence, in this article we would like to draw your attention to few pointers which may help you decide banking with appropriate bank.

Check on charges - for every additional demand for a cheque book , replacement of card or interest statement could mean an additional charge to be levied. Also, at times, the Neft charges are huge to make a regular transfer among your various accounts. In case, if you transact more than 15 time at the local branch in a month (in most of banks ) it is subject to charge. These charges are mostly true to a simple savings account or mostly in private banks. Incase of privilege banking or HNI account these charges could be waived off.

Check on Average Balance Requirement - in case if there is high balance requirement, opening a savings account is not helpful especially if it's a salary account with all EMI and payments linked to it.

Check on automated payment option - although now mostly all bank have  introduced ECS payment for utility and other regular bills,it is no harm to understand if it is free or chargeable.

Check on technology support - it is necessary to see if you can transact your basic needs beyond local branch from your computer,mobile or phone. If there is an app designed it should have the required  security facilities. Even if the bank boosts of good deals on online marketplace it always better to compare it on ur own.

Thus we understand that owning a savings account is not a momentary decision buy requires a lot of plan to it. Its not like a sub sandwich, made of limited options.

Investing vs Saving

We often use the word 'saving' and 'investing' interchangeably and believe it to be alright. We mistake the two as synonyms and use them without any precaution. Every Investment is a subset of Saving but the other way round is not always true.

So, how do we categorically differentiate between the two? Why is it important to understand the difference between them. Today, we would mainly like to highlight on these two points.

The Merriam Webster definition of Saving goes as “an amount of something that is not spent or used” and for Investment goes as ” the outlay of money usually for income or profit“.

So, every amount that is saved is not necessarily invested. Hence, when in financial planning we talk about saving it is more related to your survival instincts and when we talk about investment it is about your goal achievement. In simple words, savings is acceptable for short term requirements whereas for long term,we should think of investing them. A person, who just manages to meet his expenses talks more about saving and not about investment. On the other hand, a person who has a healthy surplus of savings talks about investment to get better returns.

Why is Investment necessary? 

 

Lets take a simple example, we may have some extra dal – rice over dinner, which keep back in refrigerator for next day consumption. However, on next day due to some reason,we can't eat it, we prefer to give it away. We don't store it for weeks together unless it we are running tight on our monthly budget. Just like this, we can hold our saved money only a few days in our bank account or locker but beyond a certain time, it needs to be kept in a better savings avenue. In simple words, it needs to be put for a better use than storing it back.

Thus, as a planner whenever someone points to us that we are saving well for our family future, we quickly correct them to invest well rather than simply saving it. An asset can rise to its full potential only when it is put to a proper end use and earn a better return potential.

Lastly, lets look at some of avenues to save and invest :

For short term savings, we can look at :

• Savings accounts
• Money market accounts
• Money market mutual funds

For long term investment,we can look at :

• Stocks & Shares- Direct Equity
• Fixed Deposits
• Mutual Funds & ETFs
• Small Saving Schemes
• National Pension Scheme
• Real Estate
• Precious Metals

So lets all look at making the most of our saving and invest it in the right manner to help us achieve all our goals. Contact us at saarthifp@gmail.com to understand your goal planning.