Monday, Aug 15, 2022
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How Relevant Is Financial Planning For An Investor?

The need for financial planning has mainly increased over the years because of Inflation (including lifestyle Inflation) and Consumerism. 

Saurabh Jain, Director, Magnum Finvest Services
Saurabh Jain, Director, Magnum Finvest Services

Today, financial stress is major cause of worry among people as a result of rising expenses, lifestyle inflation, EMIs, loans, and so on. Through proper financial planning they can plan their income-expenses, asset -liabilities & investments in a more proactive manner so that not only they have achieve mental peace but at the same time they could attain their financial freedom and fulfill their goals.  

The need for financial planning has mainly increased over the years because of Inflation (including lifestyle Inflation) and Consumerism. 

Inflation + lifestyle inflation: As we all know inflation is the term defined for persistent raise in general price levels of goods and services in an economy. We all are aware that price of commodities has risen over the years and, in all likelihood, will continue to rise. In other words, the value of money is falling gradually. Plus then there is something called lifestyle inflation which is in addition of normal inflation. Perfect example of lifestyle Inflation is: Earlier we used to spend only Rs 50 -100 for a movie ticket. But today price of a movie ticket in multiplex has gone up to Rs. 250-400 plus the cost of popcorn tubs will scale it up beyond 600 rupees. 
Consumerism is the key reason why one should have a financial planning as today people are consuming lot of goods and services. With lifestyle expenditure increasing day-by-day need for having a Sound Financial Plan is imperative. 
10-15 years back, there was no need of financial planning because;

FD rates   8-10% appx.
EPF/PPF rates 10% appx.
Inflation    4% -6% appx. 

 There was no acute need to have a financial plan 10-15 years back as traditional products like Fixed Deposits and EPF/PPF had the potential to create long term wealth. 

Today the above figures have changed.

FDs rates  5- 6% appx.
EPF/PPF rates    8.1% appx.
Inflation + Lifestyle Inflation   8-10%

 However, as time has passed, things have turned around; presently, interest rates on FDs and EPFs range from 6% to 8%, while inflation+ lifestyle is hovering around 8-10% As a result, it has become increasingly vital to develop a Personal Financial plan in light of the changing circumstances. 
Traditional definition of Savings is: Income - Expenses = Savings 
But practically in Current Scenario taking lifestyle inflation:  Income - Expenses = Zero or EMI
So in order to change the above equation: there is a need to adopt a behavioral shift, if people want to actually succeed in achieving their financial goals on time; Income – Savings/investment = Expenses 
Spend, what is left after you have Saved & Invested for your financial goals.  
This small behavioral shift will make a sea change in the overall Financial Planning & Wealth creation journey for the Investors. 
Therefore Financial Planning & Goal Setting will setup a roadmap for the investors in terms of fulfilling their short term, medium term and long term goals and thereby ensuring an Emi free & stress free life.    
 

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