For a large number of Indians, especially the salaried class, financial planning starts and ends with tax planning. And for several of these people, it starts around January of every year and ends by March of the same year. How ever, the reality is financial planning should be a round-the-year exercise, in which tax planning is an integral part, but not an end in itself.
Financial planning also involves providing for one’s retirement, child’s education and marriage, putting in place a plan for healthcare and medical emergencies for the whole family, life insurance, other financial exigencies, etc.
Involve your entire family
The process of financial planning also involves the whole family and it’s not just for an individual, unless there’s no immediate family. So remember to take your spouse along when you are going to meet your financial planner. Lately, financial advisers are also insisting on involving teenaged children so that the ideas, values and benefits of financial planning could be ingrained in their minds very early in their lives so that — unlike their parents — they have a head start on the same.
According to a Mumbai based financial planner, it is seen that not all members of a family have similar ideas about the family's future needs. “Once a person came to us for financial planning but was very reluctant to bring his wife along. When we insisted, she joined us. While setting goals, we saw that the person had no idea about the expenses the family could incur for their daughter’s wedding at least 15 years down the line, but his wife was very clear about what the family will need to do. From then on, that person always came to us with his wife,” the financial planner said.
Be ready to spend time
According to industry veterans, one of the first steps of financial planning is to profile the person, map his/her financial goals, pinpoint the kind of risks he/she should be open to taking and then put in place the type of assets he/she should be investing in to reach those financial goals.
This is an exhaustive process and the family of the person should be willing to spend some quality time with the fi- nancial planner for better long- term results. Once the initial meetings and planning are over, the follow-up meetings are, usually, not so time consuming, according to planners and advisers.
Aim for emergency fund, better returns
Advisers and planners also say that, since salaried people have a regular cash flow, they are less likely to put in place a plan to meet any financial exigencies. In today’s world where hire and fire is almost becoming the norm at the workplace, every individual should have an emergency corpus to take care of monthly expenses for at least six months, according to financial planners.
Another common trait among salaried people is that they are usually risk-averse in nature and prefer investing in debt instruments over equities. However, “given the high rate of inflation that a country like India faces, they should always look at investing in assets that have the potential to beat the rate of inflation in the long run,” says a top executive at a mutual fund house.
“Equities form the best asset class that has in the past beaten inflation and investors should look at this seriously. If you are not qualified or experienced enough to invest in equities directly, you can take the mutual fund route,” the executive adds.