What we learnt from our Customers’ Financial Planning?

“6 time Grand Slam champion Boris Becker was declared bankrupt.”

“The famous Baywatch babe Pamela Anderson went from becoming a millionaire to going broke”

These stories, though startling, are not uncommon. You can read Pamela Anderson’s story here – //greenedgewealth.com/2016/10/25/what-pamela-anderson-teaches-us-about-investments/

Why should financial planning be done?

Over last 18 months, we have completed financial planning for many clients. We were pleasantly surprised with the financial savviness of some of our customers while many had too many incompletes in their planning. Hence, we decided to write to all our readers on what we have generally observed and how financial planning would have helped them to bridge the gaps in their pre-existing financial plans (if any!).

Commonality of Goals: This is of paramount importance to help you and your family be on the same page. Many a times, we realized that the goals and investment objectives of two members within a family were different. This was either attributed to unclear common understanding or simple lack of communication. Financial planning provides a commonality to the goals of all the family members. 

Completeness of Goals: If a couple is supporting either parents and / or in-laws, it simply expands contingency planning, etc that are often not budgeted. Further, inflation for certain expenses is higher than what the government publishes as overall inflation!

Insurance: In most cases, we have seen our financial planning customers with inadequate or unsuitable life insurance covers. With a flood of insurance products available, it is very easy to get lost and buy insurance from either the most aggressive salesman or relative, or succumb to marketing tactics and campaigns. Also, salaried professionals are too overly reliant on their employers’ covers and make the folly of thinking that they don’t need to have external health covers. But broadly, we have observed that health insurance was at satisfactory levels with most of our financial planning customers.

Inadequate Contingency Planning: The contingency planning is necessitated mostly with the possibility of medical emergencies. However, for the freelancers or self-employed individuals, with erratic or lumpy cash-flows from their businesses, liquidity is always a concern and therefore, drives a stronger need for robust contingency planning.

Over / Under Allocations: We have come across customers who have been extremely conservative when it came to their investments; or plough most of their cash-flows back into their businesses. This may be a function of their risk perception (not necessarily their risk profile) or return on investments from business. Financial planning can try and bring a convergence between the risk profile and the risk perception of an individual. Further, it really tries to make the client introspect on what he/she thinks of the business prospects from a 20 -30 year perspective; most actually acknowledge the need to diversify either investments or business interests.

Expense Planning is a Sub-set of Financial Planning: Some individuals mistake financial planning with investment planning. Financial planning prods individuals to seriously look at their expenditure patterns which helps them identify trade-offs between expenses and investments OR expenses and goals.

Not a One-time Activity: Financial planning is done basis some assumptions on your financial conditions and progression, economy, inflation, health, etc. These may change either gradually over time or even in a short span of time on occurrence of a sudden shock event. Hence, we are of the view that financial planning has to be re-visited either when a life altering event happens or once every five years.

Feel free to reach out in case you wish to seek professional help for planning your finances – //greenedgewealth.com/financial-planning/