Friday, 8 February 2019

Why your Financial Plan is always Work in Progress?


Ever heard someone saying, this is my last month in the Gym, after that there is no need for me to workout ever again…I will stay fit for the rest of my life without any fitness regime. No one can retain the perfect physique forever without exercise. It is always a constant effort to stay at the desired level for almost anything that you think of. You cannot be a great chef without trying out new recipes, you cannot be a great marketer without adapting to new marketing strategies, you cannot be a great fashion designer without adapting your fashion sense towards the trending styles. Leave all of this, you even cannot even think of becoming a good parent if you don’t change from old tricks to new methods for upbringing this generation kids. If you have to upgrade your act with every other thing in life, then how your investments could be any different.

The Financial Planning Process has 6 broad steps with the last one focussing on the importance of monitoring and revision of the plan at the regular intervals. Let’s discuss why is it so important to regularly monitor your Financial Plan.


Your Financial Plan is based on assumptions

Whenever your financial planner creates a financial plan for you, the planner takes data such as your income and monthly expenditure, your financial goals, your financial assets, etc. All these data points are expected to grow at an assumed rate of return to calculate the money you would require for your financial goals. Even the future inflation numbers have to be assumed. Though past data points are taken as reference points which helps a lot in achieving your goals, you cannot expect assumed calculations to hold true for all your life. Therefore, it is required that you review the calculations at least every year for your financial plan to stay true to its purpose i.e. achievement of all your financial goals.


Change in your Lifestyle

Your Lifestyle changes at every step of your life – it changes from your college days to when you start earning, it changes when you get married, it changes when you have kids, it changes when your kids start earning on their own and are no longer dependant on you. With the change in Lifestyle, your either start spending more or saving more depending upon the circumstances you are in. This changing Lifestyle has to be incorporated in your Financial Plan because it can have a huge impact on your financial goals primarily retirement planning. Hence, it is required to review your Financial Plan on regular basis to monitor the change in your lifestyle.


Change in your Financial Goals
All of us have once in a lifetime wish – it could be a luxury car, or a lavish vacation, or anything under the sun. But sometimes this financial goal/desire fades with time. Some financial goals lose their relevance with time. It is important to understand the validity and necessity of your financial goals while reviewing your financial plan. So, reviewing your financial plan is like doing a reality check on your future financial goals.


Monitoring your Investments

Markets have become very volatile in recent times. Even the Global events have an impact on the Indian stock markets which ultimately affects your portfolio. To keep a check that whether the funds you have invested in are giving you desired returns or not, it is very important to monitor their performance on regular basis. Since Investment Planning is a part of financial planning, your financial planner can review your investments along with the Financial Plan review. It can help you reallocate your portfolio towards performing funds and help you achieve your financial goals within desired timelines.


Most of the times, the query which we receive on out DIY online financial planning portal www.theriteplan.com is – for how long should we stick to this financial plan? Is it good enough to continue for another 5 years? But the answer is NO. You have to monitor your Financial Plan and investments on regular basis. By regular, I don’t mean every week or every month – it should be at least once a year or depending upon your life situations – lifestyle changes, salary hike, change in family structure, job relocation, etc. Basically, your financial plan has to be reviewed if there is any change in your life which affects the monetary aspect of your life as well. Only then you can expect your Financial Plan to work towards the achievement of your Financial Goals.



Charu Hastir, CFPCM is the founder of http://www.theriteplan.com/. Rite plan is an online financial planning portal created to achieve a single objective of providing easy and Do It Yourself Financial Planning to netizens. Rite Plan is wholly owned by Tikkun Olam Financial Planning Services LLP. Please visit: https://theriteplan.com/index.php?route=common/home/

Tuesday, 5 February 2019

Union Budget and Your Financial Plan?


Honorable Financial Minister Piyush Goyal presented this year’s Interim Budget on 1st February 2019. Every Year, on the day of the budget announcement, you can see almost every individual glued on to their Television or mobiles to check the budget updates with much excitement. Sometimes the Budget announcements cheer us and sometimes they make us sad as we think that there are not many benefits being offered for individuals in our tax slab.


Budget is also referred as Annual Financial Statement as it contains an extensive account of the Government’s finances i.e. Government’s revenue and expenditure for the fiscal year. How relevant is this budget when it comes to our personal financial savings? Should we wait for the Budget to be announced and then start our investments or should we do our investments without any relevance to the Budget? Let’s discuss this in detail.

Budget helps in Tax Planning


Budget surely helps in planning the taxes for the next financial year. Budget is presented on 1st of February every year and contains tax proposals to be implemented for the new financial year. For e.g. this year’s budget gave rebate U/S 87 A for taxpayers having taxable income up to Rs. 5 lakh. The Government also announced a rebate for salaried individuals by increasing Standard Deduction from Rs. 40,000 to Rs. 50,000. Such announcements in the Budget help us analyze our financial situation for the next financial year and we can make changes to our financial portfolio accordingly so that we benefit the most post implementation of these tax proposals.

Budget helps in Real Estate Investment Decisions 

In our Country, due to parental and societal pressures, Real Estate is considered as a must-have. Other than buying a property to live in, people also buy real estate for investment purpose as most of us assume that real estate gives the best returns across all asset classes (It is a myth). We also used to get the full tax benefit on the interest portion of the loan repayment of the 2nd house as the buyer could set off the entire loss from house property. This limit got restricted to Rs. 2 lakhs in the Finance Bill 2017.  This year’s budget has again given benefit to the middle-income group by making second self-occupied property tax free (no notional rent) and by extending benefits U/S 54 to two properties (once in a lifetime benefit). Such proposals again bring clarity with regards to our real estate investment decisions for the next financial year.

Budget and Saving Money on Taxable Investments


Budget sometimes also impacts the choice of our investment instruments/products. Until last year there was no Long-Term Capital Gain (LTCG) on Equity shares and Equity Oriented Mutual Funds. But Budget 2018 proposed LTCG of 10% on the gains in excess of Rs. 1 lakh on both of these which made new investors a little wary of the equity investments. Similarly, this year TDS (Tax Deduction at Source) threshold for the banks and post office fixed deposits has been increased from Rs. 10,000/- to Rs. 40,000/- (though the income is not exempt and remains taxable). This might induce some investors to move towards these traditional investments.

The mindset of an investor who is not seasoned enough to understand the benefits of long-term equity investments might get changed once he/she sees Budget proposals which impact his equity investments. But equity investments depend upon many other parameters like tenure of your financial goals, your risk appetite, your risk-taking capacity depending upon your income, etc. Hence, one should not take hasty decisions when it comes to investments.

Budget is not a show stopper when it comes to Investments


Though Budget helps us in deciding upon various investment choices but is it the final deciding factor when it comes to our investments? No, it should not be. Yes, we should make changes to our portfolio as per the budget proposals and do proper tax planning, but stopping our investments or not starting with the investments due to the forthcoming budget is not recommended.

Heraclitus, a pre-Socratic Greek philosopher said, “The only constant in life is Change”. Similar to the changes we face in our lives every day – be it on the personal front or professional front. We should not get hassled by the yearly budget and keep investing as these disciplined investments in accordance to our financial plan and financial goals will take us long way rather than making changes to our portfolio now and then.


Charu Hastir, CFPCM is the founder of http://www.theriteplan.com/. Rite plan is an online financial planning portal created to achieve a single objective of providing easy and Do It Yourself Financial Planning to netizens. Rite Plan is wholly owned by Tikkun Olam Financial Planning Services LLP. Please visit: https://theriteplan.com/index.php?route=common/home/

Tuesday, 24 July 2018

Is everybody else richer than you?


Our neighbours are going on a vacation again…

OMG! How many times he changes his mobile phone…

What! She bought a new car…


I am feeling stuck

You open your Facebook account and see most of your friends enjoying, having fun time, going on long trips, showing off their newly bought car as if it is just a toy car. In the end, you log out from Facebook wondering what on earth are you doing? How do they get to spend so much of their money while you are entrapped in this vicious saving cycle – saving for your Retirement, saving for your child’s education, paying EMI for that Home loan of yours, etc. etc.

What we forget to understand is that there are sides of people’s life which we can’t see. We are only seeing the happy parts – thanks to Social Media. We don’t see the hardships people undergo to possess what they have, or worst their wrong money decisions and its impact on their life in the long run. 

PEER PRESSURE
Peer pressure is the direct influence on people by the peers (people who are part of the same social group). If someone has bought a new car, we need it too. If they are going to a foreign land for vacation, we also should go. This ‘WE TOO’ attitude makes us spend more money than the required as we tend to get influenced by this peer pressure of doing the same things or have same experiences as our peer group in order to feel good.

DISPLAY OF WEALTH
Who doesn’t want to show off? Conspicuous Consumption is the purchase of goods and services for the specific purpose of displaying one’s wealth especially if the goods and services publicly displayed are too expensive for other members in the person’s class (SOURCE: Investopedia). Such behaviour can lead to wrong money decisions and spending money on the things that won’t matter in the long run. Though comparing yourself with the others might lead you towards economic success, but not for all. Some people get succumbed to wasting money on things which are not important.

THIS IS ONLY ONE SIDE OF THE STORY
What we see in others lives is the part that they want to show. You will never know how many hours they work to achieve what they have achieved or if they are actually content in the life they are leading. We only see where they are spending more, we never consider the things where they could be spending less. Expenditure that is more important for you might not be the same for them.


How you feel with regards to your money is actually more dependent on your behaviour rather than actual facts and figures. You might feel rich while seeing you bank balance or investment account and you might feel poor while checking your bills or liabilities.

Setting Financial goals helps in the decision-making process when it comes to mindless purchase. You check if this is the thing that you really need and if it will impact your savings towards your financial goal. You will definitely delay the purchase if it is putting your financial goal at the back burner.

At the end, it is your life and you need to decide if you wish to follow the other person or you wish to have some life goals of your own. When it comes to wealth, it is more about contentment rather than comparison.


Charu Hastir, CFPCM is founder of http://www.theriteplan.com/. Rite plan is an online financial planning portal created to achieve a single objective of providing easy and Do It Yourself Financial Planning to netizens. Rite Plan is wholly owned by Tikkun Olam Financial Planning Services LLP. Please visit: https://theriteplan.com/index.php?route=common/home/

Thursday, 21 June 2018

How to set your Long Term Financial Plan?


Let me start this blog with a question? Do you dream? I’m sure all of us have dreams some fulfilled, some yet to be fulfilled. How do you hope to accomplish the unfulfilled dreams? These dreams do surely need financial aid in the form of savings. And for that you have to think about your financial future. A survey done by Aviva India reflected that Indians lack the discipline to create robust financial plans to secure their future hence exposing them to uncertainty.

If you don’t have a financial plan, it would be difficult to make your money work for you. Without proper planning and goal, your money in the bank account will yield no results. Here are a few steps to help you build a financial plan.

I.                    Financial Assessment

You need to know where you stand in terms of your finances. Your current assets, liabilities, savings, and your financial goals. For making a picture, you need to have the frame first. Similarly, for building a financial plan you need to have a fair idea on your current financial situation. You should know important money aspects like your monthly average expenditure, a detailed report on your investments, and your net-worth. Once you have this big picture you can easily define your financial plan.

II.                  Decide on your Goals

You never go on a road trip without knowing your destination. Then why should you do the same when it comes to your finances? Goals could be either for long term or short term. Long term goals include goals like retirement planning, kid’s education and short-term goals include goals like buying a car, or a home. Sometimes goal classification also depends on your age e.g. if your kid is 15 years old, his graduation goal becomes a short-term goal as it needs to get accomplished in next 3 years. Goals should be SMART in nature.





I.                    What NEEDS to be done?

Now, you have set your goals which are SMART in nature. What is the next step? You need to know how much money you should save to achieve the goals. For that you need to know how much your savings will earn i.e. the rate of return at which your investments will perform. There are different savings instruments.

Equities – give higher returns over long-term but has volatile nature so you should have the heart to stay invested during market ups and downs.

Debt – gives conservative returns with less risk, but the quantum of investments has to be higher as money invested would be earning less.

Real Estate – a very illiquid investment but gets all the love due to its tangible nature.

Gold – an asset class to be used for diversification in the portfolio, but one shouldn’t have higher allocation.

There is no need for you to choose only one strategy for your investments. You can blend all depending upon your risk profile. And it is good to take conservative projections when it comes to expected returns from your savings for your goals.

II.                  Balance - Regular savings and expenses

Once we know our goals and the regular savings which are required to be done to achieve those goals, it is the time to do a reality check. Whether we will be able to save? This depends upon our current income and expenditure. If yes, then we should start saving immediately. If NO, we need to relook our goals once again. Questions like – are the goals realistic in nature, can they be achieved on time, should be asked. For non-negotiable goals like retirement or kid’s education – we need to try to reduce our expenditure so as to save for these goals. For negotiable goals like buying a house, or vacation goal, you can either reset the goal, or increase the time-line for the goal. All these changes should be thoroughly discussed with your family members who get affected by the goal and your financial planner.

III.                Regular Monitoring and Update

Once your financial plan is running, you should maintain the discipline of sticking to it. You should monitor your plan once a year or if there is any change in your lifestyle – may be a job change, or a salary hike, or even any change in the family structure.
It is also important to relook your investments on regular basis (at-least once in 6 months). Sometimes, the money we have invested isn’t giving the desired return, our risk preferences also change depending upon various factors. So, portfolio re-allocation has to be done on regular intervals otherwise it may lead to unaccomplished goals.

Financial Planning is a life-long process. One just can’t do it once a year and then leave it for the lifetime as it would need corrections, changes, updates just like your life which doesn’t stay the same forever.

Charu Hastir, CFPCM is founder of http://www.theriteplan.com/. Rite plan is an online financial planning portal created to achieve a single objective of providing easy and Do It Yourself Financial Planning to netizens. Rite Plan is wholly owned by Tikkun Olam Financial Planning Services LLP. Please visit: https://theriteplan.com/index.php?route=common/home/