Rupakumar Pradhan, CFPCM, CWM®

Personal Financial Advisor

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Client’s “Comprehensive Financial Plan” Experience

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Client’s “Comprehensive Financial Plan” Experience

Client’s “Comprehensive Financial Plan” Experience
December 26
07:25 2017

Mr. Sachet Parida, Mumbai shared his “Comprehensive Financial Plan”  journey with us.

He has done his ‘Comprehensive Financial Plan’ (60-70 Pages Written Financial Plan) on 16th May 2012. Already 5 years passed………..miles to go………………

Our disciplined and repeatable process enables us to provide our clients with a high quality comprehensive financial planning experience.

Mr. Sachet Parida’s Experience

Before I begin let me confess to the readers of this blog is that I am a fan of Systematic Investment Plans (SIPs). I began investing in them from 2012. The credit for pushing me towards importance of SIPs and financial planning goes to Mr. Pradhan.

Next to one’s health, perhaps nothing is as private as one’s financial circumstances. In the Indian society people where we can just can’t open up and ask for the help they need to make a secure financial plan for their life, seldom have I heard anyone mention having a comprehensive plan in place to meet their goals.

From my experience I learnt if you cannot plan it yourself, take help from independent financial advisers and avoid free advice from banks, brokerage, investment house, insurance company, etc. If you cannot cure a tooth ache by watching Youtube videos, so why try going solo on something as important as your finances?

My Portfolio: 

Initially constrained by my loan payment obligations, I started with few mutual fund investments (SIPs) based on my financial plan. Within a year of preparing the financial planning, I realized the power of the financial plan. In these years, there have been multiple events in my life and one thing is that I have never to worry about is money.

Due to my age and goal duration initially Mr. Pradhan recommended balanced mutual funds. However gradually with changing life goals I have become more of pure equity mutual fund investor. The only exception to this strategy is for emergency funds. Since maximum of my tenure the markets have been in a bullish phase, I have seen an IRR of 15-18% for my goal portfolios. In each category of funds I have very few funds. For diversification, a small part of my portfolio consists of foreign themed mutual funds however I have never invested in sectorial funds. The maximum number of schemes are with Mirae Asset mf, DSP BlackRock mf and Franklin mf. I also have medical insurance and pure term plans for my family.

Planning is a magical tool which needs proper understanding and awareness. Whenever market crashes, I see a sharp fall in value but instead of getting panicky, one needs to overlook this aspect and continue investing. Financial Plans absorbs the risk of the market and ensures funds are available for your plans.

From my experience with Mr. Pradhan, I would like to outline some F.I.N.A.N.C.E. strategies to ensure success of your financial planning.

F – Financial Plan

I – Investment Goals

N – Need for Term Insurance

A – Avoid Gold & Property as investments.

N – Never check NAV Daily

C – Consistency

E – Early Investment

Financial Plan:

There is a lot of noise regarding investments be it Sensex, ULIPS, Gold Funds, Insurance, NPS etc. The best way to cut through all the noise is to sit down with someone with the knowledge, experience and most important with CFP Certificate, to help you plan your “Financial plan” which will help you by creating a timeline for you to follow for your goals. It helps you focus the way you manage your money and your time on reaching your investment goals, so that you can do the things you want to in your life. A financial planner can help you determine how much you need to invest each month and make recommendations on the type of investments you should use to reach those goals.

Also an important part of your financial plan is your budget. Your budget allows you to plan how and when you want to spend your money. The problem that stems from not having a detailed budget is that it can lead to overspending, debt problems or even the inability to adequately plan for your future. Once you can see the inflows and outflows of your money you can optimize your spending so that necessary items are sure to be covered while cutting back on wasteful spending that will allow you to save money.

Even after creating a sound budget and cutting unnecessary expenses you may still find yourself with lingering debt, it might be credit card payment (bad debts) or housing loans (good debts, as assets appreciates, rate lower and provides tax benefits). It is advisable to cut get rid of unnecessary bad debts like credit card EMIs as it is essential in reaching a state of financial independence.

Investment Goals: 

A financial plan helps you prepare for the big events in your life. Unless you plan for it, you will not wake up one day and magically be ready to purchase a home or a car. It makes budgeting and saving easier if you have a clear goal or purpose for the money you are saving. This gives great visibility to you and therefore more control and more peace of mind. Longer-term investment goals might be education planning of children (maybe even your own) or retirement. It may be 15 years or more before needing access to these funds. Shorter-term investment goals could be things like saving for the luxury items like IPhone, your hobbies (DSLR Camera, Sports Bike), down payment on a home, a family vacation, or a new car. Typically these are targets of five years or less. The two important goals which people generally neglect considering they are covered by there are employers are retirement and contingency planning.

Retirement: Saving for retirement is essential. When you save for retirement you are saving for your future. When you neglect retirement you run the risk of not being able to take care of yourself when you are older. Even though insurance will cover the health care costs after you turn 65, there may still have a lot of out-of-pocket expenses. When you neglect retirement you run the risk of not being able to take care of yourself when you are older. Your retirement goals should come before saving for your children’s education or going on vacations. You do not need to rely on your employer provision like EPF,NPS or PPF to start saving for retirement. If you haven’t started saving for retirement you need to start with a plan in mind. Start contributing right away, and slowly increase your contributions as you get raises. If you are below 30 you can save 5% of your income for retirement and gradually keep it increasing as your salary increases.

Emergency: It is important to have an emergency fund set aside to cover unexpected expenses. This could cover an unexpected car repair, your emergency dental filling or a sudden job loss. Ideally your emergency fund should be about three to six months of your expenses and it important you set aside 5-10% of your salary to reach this fund amount. The earlier you reach this goal the better of you are of for other goals.

Need for Term Insurance:  

Insurance is important because you have worked hard to build a solid financial footing for you and your family so it needs to be protected. Never mix insurance for investments. Many people see insurance as a useless expense and hence they think it’s better to just buy a product that will give some return as well. Do not buy ULIPs and exit your current ULIPs and instead buy a term insurance with an adequate cover. The difference of the premium and ULIPs and term insurance can be invested in equity mutual funds which will generate greater returns.

Avoid: 

Avoid property and gold as investments, buy it when required as an asset by factoring it in a financial plan. Your grandfather made money in Gold, your uncle made money in real estate. You will not. You will make your wealth in equities. Your primary residence is not an investment. These are not investments any more than a cup of tea is. They are assets. The Bull Run in Gold and Real estate is over. Investing in a portfolio of debt funds will give you better returns, tax efficiency and liquidity.

Never check NAV Daily: 

Avoid checking your portfolio every daily and weekly as it leads to unnecessary anxiety, which results in irrational investment decisions. You may jump out of the funds at wrong times. Passively observe market situations without reacting emotionally. Follow your plan and don’t ‘book profits’ on your funds until you really need the money. Wait for the goal time to come closer, exit the market risk by switching to debt instruments. However, review the investments and financial plan along with the advisor from time to time (at least once in a year) and exit the poorly performing investments.

Consistency: 

The only thing that matters in building wealth is diligence and discipline, not intelligence.  The key to any financial plan is consistency. You should consistently save around 20-30% of your income, adjust your spending in a way that aligns with your values and keep expenses low to suit your lifestyle. Just like training for a marathon, financial planning is a process which show results with time. Financial planning is about adjusting habits, making smart decisions and training consistently over a period of time. When you follow a structured process that keeps you “in your lane,” you see results.

Early Investment: 

The earlier you start saving the less you will need to put aside each month to reach your long term investment goals like retirement savings goals.  When you save or invest, your money earns interest or appreciates. The next year, you earn interest on your original money and the interest from the first year. In the third year, you earn interest on your original money and the interest from the first two years. So I would recommend you to start financial planning early when you are in your twenties and do not ever thing you do not have enough money to start investing. Mutual funds SIP can be started for as low as Rs. 500.

The Rule of 72 will help show you the power of compounding. The Rule of 72 states that you divide 72 by the rate, expressed as a percentage.

For example, if an individual invested Rs. 10,000 today and earned 4% per year, it would take approximately 18 years for the Rs.10,000 to become Rs. 20,000 (72 ÷ 4 = 18).

To illustrate, let us look at two individuals, Naveen and Rahul, who are both the same age.

Naveen started saving soon after his first job and accumulated Rs. 10,000 by the age of 25, and he never saved another penny the rest of his career. Rahul on the other hand, started his savings program later — 10 years after Naveen. But Rahul invested a lump sum of Rs. 20,000 (double the amount Naveen invested), and he too never saved another penny the rest of his career.

Both Naveen and Rahul earned a generous 8% per year on their investments, which means they doubled their money approximately every nine years.

Who do you think had more money at age 65?

Although Rahul invested double the amount of Naveen (Rs. 20,000 vs. Rs. 10,000), he ended up with Rs. 16,000 less than Naveen, or approximately Rs. 201,000, while Naveen’s money grew to approximately Rs. 217,000.

By starting early, Naveen was able to invest only half of what Rahul invested, and still end up with more money — doubling his money more than four times during his career.

I wish you luck in your financial journey and always remember money is always a means to an end not an end itself.

 

“Planning is bringing the future into present so that you do something about it now.” ~Alan Lakein

Thank you very much Mr. Sachet Parida for sharing your ‘Comprehensive Financial Plan’ experience with others.

 

I am a CERTIFIED FINANCIAL PLANNERCM. For the moment, I have shared my experience growing up with you because it had a tremendous impact on how I do what I do.

If you have a question about your own financial situation please connect with me.  I’d be delighted to try to be of service.

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Want to become a Crorepati with Nominal Income? Read it.

 

About Author

Rupakumar

Rupakumar

Mr. Pradhan has over 22 years of experience in financial services industry. He was previously working with leading Life Insurance Companies, Broking Firms, Distribution Company, Financial Planning Company and Health Insurance Company. He has cleared several NCFM modules & is also AMFI Certified. His expertise is in Comprehensive Financial Planning, Technical Analysis, Portfolio Management, Investment Advisory, Wealth Management & Business Development.

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2 Comments

  1. Jagan
    Jagan December 27, 13:42

    Proud to be a part of smartfin 🐯🐯🐯

    Reply to this comment
  2. Jens
    Jens December 30, 22:29

    Useful blog.. many thanks for this. Got fundamental idea about SIP. I am always following Mr. Pradhan about financial planning. I remember the line from his post- compound interest is the eighth wonder of the world. My new year resolution will be investing in SIP. Thanks again for this.

    Reply to this comment

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