Financial Planning for Individuals

1. Financial PlanningforIndividuals www.CAProfession.net Contact web@caprofession.net Acknowledgement – We used the ‘Background material for CPE on Financial Planning’ published by The Institute of Chartered Accountants of India, New Delhi while preparing this presentation

2. Overview • Meaning of Financial Planning • Procedure and Steps involved in financial planning • Financial Planning Process • Financial Planning; for whom? • Why financial planning • Factors affecting financial planning • Some Common Mistakes • Need for a financial planner • Certain matters of caution • Wealth, Risk, Investment and Tax Planning (WRIT Planning)

3. Meaning of Financial Planning • The process of meeting life’s goals through proper management of financial resources • Channalising current small savings into future huge benefits

4. Financial Planning Process Procedure • Assessment of current position • Identifying and prioritising of objectives / goals • Development of a plan • Implementing the plan • Review of the plan, at regular intervals and revision if necessary Steps • Wealth planning, Risk planning, Investment planning, Tax planning, Cash Flow Management

5. Financial Planning; for whom? Every one • Age, does not matter • Gender, does not matter • Level of Income, does not matter • Occupation, does not matter Willingness to save; matters Willingness to act; matters

6. Why Financial Planning? • To meet current obligations • For setting up of the family • To welcome new members into the family • To own a house, vehicle, setup office etc., • To maintain liquidity for meeting contingencies • To protect family from unexpected and unwanted events • To lead a comfortable social life of desired status • To ensure children’s or families future needs or requirements • To ensure happiness' by avoiding financial distress at every point of time • And many more

7. Factors affecting Financial Planning Income Factors current income, occupation, tax on income Personal Factors education, family background, religion, age, sex, responsibilities & commitments Risk Factors sentiments, attitude, outlook Tax Factors tax slab, tax incidence, Return Factors Rate of return, attitude, appetite, risk nature

8. Some Common Mistakes • Not setting measurable and practicable financial goals • Make decision without evaluating impact on other financial issues • Confuse – financial planning with investing • Neglect to re-evaluate their financial planning periodically • Think that financial planning is only for rich/wealthy • Think that the financial planning can be done at older age / as retirement planning • Wait until a money crisis • Expect unrealistic returns on investments • Think that consulting planner is not required; some relative or friend can advise • Believes that financial planning is primarily tax planning

9. Need for a financial planner • Financial Planning is like homeopathy; treatment is prescribed based on individual symptoms. There is no single generic solution available or applicable for all. • Many a advisors are in fact marketing agents for insurance companies or mutual funds or investment agencies or finance companies etc., because of which their advise can be biased. A Chartered Accountant or a professional Certified Financial Planner can not be marketing agents as their professional code of conduct does not permit such affiliation there by you can expect independent and unbiased advise from them.

10. Certain maters of caution • Request your friend / colleague / relative to suggest a name of a Financial Planner whose services they have availed • Evaluate a planner before submitting your details • Obtain statement on scope of work • Issue appointment letter / mandate letter based on the scope of work • Obtain different planning strategy suggested – in writing • Consult the financial planner as and when there is a change in your level of income for suitable modification of the strategy.

11. Wealth, Risk, Investment and Tax Planning – Few tips Risk Planning • Earning member of the family – a minimum risk cover of 5 lakhs • Non-earning member of the family – a minimum risk cover of 1 lakh • Risk cover should start on children at the early part of their life • Spread the policy cover to the maximum period of premium paying term • Cover all the family members • High risk cover – long premium paying term – low premium should be the first choice • Ensure that premium does not become a liability; do not go for over insurance i.e. more than the required quantum • Never delay in paying the premiums; pay few days before the last date.

12. Wealth, Risk, Investment and Tax Planning – Few tips Investment Planning • Invest in recurring / cumulative deposits of your bank in small quantities (range should be between Rs. 500/- and Rs. 10000/- per month depending on your income level and the period of deposit can vary from 36 moths to 120 months) • Give more weightage to risk factors than to return factors • Invest maximum in tax exempted funds or schemes although the rate of return is lower compared to normal market rate of return that are associated with high risk • Ensure at least 3 months income is maintained in liquid form although the rate of return is nil or very minimum • In case the funds to be deployed are huge, invest through mutual fund route rather than direct

13. Wealth, Risk, Investment and Tax Planning – Few tips Investment Planning • Invest directly in security markets provided a specialist advisor is with you always to guide • Invest in such products which appreciate over a period of time • Always keep in mind the difference between price of the asset / product and cost of the asset / product • While investing in house property or land etc please ensure that you consult your legal advisor and obtain a legal opinion in writing • Never invest in unorganised sector or with individuals / firms / companies who offer exorbitant returns unless you write off your investment, psychologically, at the point of investment • Keep in touch with your financial planner before making an investment that is not mentioned in the strategy.

14. Wealth, Risk, Investment and Tax Planning – Few tips Tax Planning • Use all the possible tax benefits that are available to you to the maximum • Never stick to minimum tax payment; plan for optimum tax payment • Accept that Tax & Death are certain • Ensure that all tax payments are made by due date Wealth Planning Your risk planning, investment planning and tax planning, all put together, will result into wealth planning.

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16. Thank you