Personal Financial Planning

Aniruddha Bose
Director & Business Head
FinEdge Advisory Pvt. Ltd.
www.finedge.in

What?

Determining
financial goals
& objectives

Understandin
g purposes &
priorities in
life

After
considering
resources, risk
profile and
lifestyle,
detail a
realistic plan
to meet those
goals

Periodically
reviewing the
Financial Plan

How?

The need for Financial

Planning

Products (and conflicts of

interest!) add to the confusion

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

Financial Planning leads

to sustainable wealth
creation
UE, MONEY CANT BUY HAPPINESS

But its so much more comfortable to cry in a BMW

than on a bicycle!

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

Is Financial Planning
simple?

But then again

so is losing weight!
Weight loss simplified Eat Less,
Exercise More!

=
Simple does not always equal
Easy!

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?

FP Concept #2: KYP

Know your Priorities!

Financial
Planning

Achieveme
nt of your
Wealth
Financial
Creation
Goals
your
priorities
!

VACATIONS
NEW CAR
NEW HOUSE
LOAN PREPAYMENT
INCREASED LIVING
STANDARD
CHILDRENS EDUCATION
RETIREMENT FUND
EMERGENCY FUND

FP Concept #3:
The 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

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!

FP Concept #4:
Hyberbolic Discounting

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

Compound Interest vs Simple

Interest
An illustrative exercise

FP Concept #6:
Spec Pyramid
The Financial Planning
ulati
on
Tradi
ng of
Equit
ies,
Forex
,
Com
modi
Investments
ties,
Stocks, Land
Real Estate,
Mutual
EtcFunds

Savings
SIPs, RDs, Endowment Life Insurance
Protection
Debt Reduction, Life Insurance, Health Insurance &
General Insurance

FP Concept #7: Goal

Planning

Exercise: Goal Planning

College education in India is inflating at
___% P.A. If I require Rs. ____ Lacs today,
then after ___ years I will require around
____ Lacs for the same quality
education.
Rs . ______ invested per month today will
give me Rs. N Lacs after 15 years at ______
ROIC

If I am a 35 year old planning to retire

at 60 with an inflation adjusted annuity
equivalent to Rs. ________ per month in
todays terms, I need to put together
__________in 25 years
Rs . ______ invested per month today will
give me Rs. 2.5 Crores after 25 years at
______ROIC

Income Expenses =
Savings
Change This
To

Income Savings =
Expenses
Source : Rich Dad Poor Dad

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

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

www.finedge.in
servicedesk@finedge.in
011-45072800