Financial Planning - The Key to a Musical Retirement or a Bag Full of Regrets

Posted On Friday, Nov 02, 2012


I entered my house and saw a pair of shoes, which looked familiar and the sight almost choked me. They were my dad's shoes, and he had passed away a few months ago. So what are these shoes doing here, I wondered? As I calmed down I realized that my mom had cleaned up the shoe rack and had forgotten to keep the shoes inside.

One thought led to the other and I remembered the first few weeks after his death when I had to sort out his finances and realized that his asset allocation was suboptimal over the years. It was his frugal habits that allowed him to accumulate wealth and not optimal asset allocation.

Do you ever wonder, what would ones family do if one passed away today? I did, and realized that I had to be better planned. I am not as frugal as my dad but I have some of his habits and managed to save. But was this enough?

Was the asset allocation optimum? It was not.
Did I put a financial number to all financial goals or commitment I had? No I had not.
Did I have adequate life insurance? No I did not.
How about medical insurance and home insurance? What about money for my child's education, with her aspirations are increasing by the day.
The difference between a lucky outcome-like in my case and an unlucky outcome could be disastrous in terms of terminal wealth.

Can you imagine how much that family has to go through in order to pay their bills, if one does not leave enough for them?

So what did I do? I took some expert advice on financial planning.

What is

Financial Planning?

Financial Planning is a solution which converts your goals into action plans and provides the direction and discipline to achieve these goals.

Why is Financial Planning Necessary?

If you have certain life goals, such as you wish to have a worry free retirement, you wish to educate your children at the best schools and colleges, you wish to purchase a house or a car, or any other life goals, then building a Financial Plan can help you to achieve these goals.

Your Financial Plan will work towards achieving goals such as retirement planning, child's education planning, marriage funding, house purchase, debt management and insurance planning.

Financial planning could help you in:

Categorising your risk appetite

Putting a number to your goals- broadly tells you what is achievable and what looks difficult to achieve

Map your current and future cash flows to your financial goals

While some banks do offer financial planning service - I found their approach to be less thorough. I would advice going to an independent financial planner. You could even Google "financial planning" or "personal finance" and get a list of websites that offer this service.

The importance of financial planning (especially in the present scenario) cannot be overstated. Among others, two factors are responsible for its importance i.e. inflation and changing lifestyles.

Inflation is a situation where too much money chases a limited number of goods. This leads to a fall in the value of money. It is also expressed as a rise in the general price level. For example, a product that costs Rs 100 at present would cost Rs 105 a year from today, assuming that prices rise at 5%. This is the impact of rising prices over one year; over a 30-Yr period, assuming that inflation continues to rise at 5%, the same product will be available at Rs 432!

Financial planning can ensure that you are better equipped to deal with the impact of inflation, especially in phases like retirement when expenses continue but income streams dry up.

The second factor is changing lifestyles. With higher disposable incomes, it is common for individuals to upgrade their standard of living. For example, objects like cars that were considered luxuries not too long ago, have become necessities today. Financial planning has a role to play in helping individuals both upgrade and maintain their lifestyle as well.

Finally, there are contingencies like medical emergencies or unplanned expenditures that an individual might have to cope with. Sound financial planning can enable you to easily mitigate such situations, without straining your finances.

Risk Factors: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Please visit – to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the scheme's objective will be achieved and the NAV of the scheme(s) may go up or down depending upon the factors and forces affecting securities markets. Investment in mutual fund units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the Sponsor / AMC/ Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited (AMC). The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

Above article is authored by Quantum.

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