Financial Planning – An Investment or Expense?

finanical planning in india

Transcript, if you would like to read instead

Jaya: Welcome back to our podcast – The spirit of Kairos is to talk about doing the right thing at the right time for personal finance. We have Namratha here joining us on our episode today! Hi Namratha

Namratha: Hi Jaya, Hello All!

Jaya: Some of you may have had a chance to participate in the poll we conducted, and we have had quite a good response. Keep listening in to hear how people had answered for the poll and whether it is in line with your thoughts.

We are at the start of the financial year. Did you know that the month of April is recognized as National Financial Literacy Month.

Namratha: Oh yes! This was first recognized in the U.S.A. and I think it’s the best time to reflect upon your spendings and improve your finances.

Jaya: Tell me, what does financial literacy mean to you?

Namratha: Financial literacy means different things to different people. For some it is a wide-ranging concept, but generally I would say financial literacy means focusing quite narrowly on basic money management skills – budgets, savings, investments, insurance.

Jaya: That’s Great! From the results of one of the poll it was very clear – Many still believe that working with a professional financial planner isn’t worth it and tend to see it as expense than an investment.

Also, to top it up when asked about what make people think twice before taking up a financial planning – around 33% of them had said it is expensive and around 47% have said they can do their own plan.

Namratha, what do you think about DIY planning?  

Namratha: When people think of financial planning, they majorly think retirement planning or investments. But financial planning is a bit more logical – it’s about looking at your total financial picture, not just one thing in isolation, and helping you plan and achieve your goals at every stage along your financial journey.

You can choose DIY if you are confident on these things:-

          • Navigating financial markets on your own
          • Cultivating the right investment behaviour and habits
          • Dedicating additional time to your financial needs

Managing money can be challenging, and not all of them have the time to sort out the more complicated details. That’s when it’s time to call in the experts and get some help.

Jaya: I agree! Knowing you have a plan removes stress, worry and guilt around money, and allows you to enjoy your lifestyle today knowing tomorrow is under control. 

So, one of our polls had this question of – where we asked how a financial plan could make a difference?  Options were – discipline in investments / managing debts / planning for goals – So Majority of them have voted on option d where it covers all aspects of finances from investments to goals to managing debts. This is exactly what we wanted to convey – that financial plan cannot work well in isolation and different aspects of your personal finance need to be addressed.

What value add does a financial planner / advisor bring in?

Namratha: There are many ways that a financial advisor can add value to your efforts to grow your wealth. Among these are:

Each financial plan will contain elements of tax planning, risk management, investment planning, etc. This is just a process of financial planning, but a professional can help you create a customized plan to tackle most of your financial goals.

They can offer practical advice on specific scenarios that you may have in terms of your money and life– help with tax planning to different goals, retirement planning, emergency funds, investments that are suitable for your journey.

It’s important to find one that will work with you and your unique circumstances in a fiduciary capacity.

Jaya: Thanks Namratha. I’ve observed people who take professional advice are more likely to feel good with their financial position and better prepared for the future than those who don’t.

Namratha: Exactly! So, for the people who voted on not choosing a financial plan because its expensive – I would like to say – It’s important to measure the fairness of a fee with client satisfaction rather than the amount.  We see people feel more confident in their financial decision making, in control, and clearer about their finances with professional help.

Jaya: Whether or not we admit it, everyone has unconscious biases that could affect the financial decisions one makes. How do you think a professional can help with this?

Namratha: One biggest way an advisor can add value and help you with financial freedom is through something called “behavioural coaching”

Behavioural economics shows that people tend to act irrationally when it comes to their own money. So, an objective outsider can improve the quality of decision-making. Similarly, when it comes to our own money, we might end up making irrational decisions. So, this type of advice helps you reframe your thoughts about the market and act calmly, even during times of market turmoil.

Jaya: How true! Even during the recent pandemic, we saw people making decisions out of panic. Like you rightly said – A financial planner can help you from making such mistakes. You shouldn’t let your emotions drive your investment decisions.

So, would you say all people need financial planning and advise?

Namratha: May not be, Like I said before people who have the time and knowledge can still plan themselves. These are people who truly enjoy investing and they have a high level of control over their feelings, which helps them stick to their long-term investment plan.

Given that most people aren’t self-directed when it comes to investing, it’s good to know that you can still find the kind of help that will really pay off.

Jaya: That’s a valid and interesting point. I’ve often observed that when goals change or are abandoned, the motivation to save decreases. And it’s very difficult for people to imagine that they’re going to need this money ten years down the line when they have opportunities to spend it right away.

So, running this journey along with a professional and knowing why we’re saving plays such an important role in the financial wellbeing. I guess we’re only going to be aware when we spend that reflecting about what we want from our money.

Namratha: Absolutely, I think this culture of mindfulness finds a place in financial planning as well. The more aware and conscious we are, the better the quality of our decisions.

Jaya: Definitely! I feel that people see financial planning as running few numbers and projections, I know it’s beyond that. Would like to highlight on what goes into this process?

Namratha: Thanks for bringing up that question, it connects to the point that I was going to make.

Planning pays for itself, and it does help you prevent certain financial issues rather than fixing problems after it occurs. Let me take you through some important elements:–

          • basic numeracy skills are sure involved like the ability to calculate rates of return on investments and analyse your goal scenarios. But doesn’t stop with that.
          • an understanding of the benefits and risks associated with financial decisions, including spending, borrowing, and investing.
          • the ability to understand basic financial concepts, including the trade-off between risk and return, the main attributes of different types of investments and other financial products,
          • the benefits of diversification, compounding and the time value of money.

Jaya: Thank you for all the insights. I’m quite sure this of great help to anyone who wants to choose a financial planner. 

Being successful financially isn’t just about how much you earn over time – it’s about what you do with it. Through our conversation, it’s pretty clear that it is highly helpful to have a professional help to make your financial decisions.

Reach out to us if you are looking for someone to create a tailor made advise to help you create a plan that strategically addresses your unique goals and needs.

Thank you for listening in! Do share if you like our episode.

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