As the financial year end approaches or the tax filing last date nears we all go in an overdrive to get our finances in order. We consult with our “friendly agent”, talk to the accountant in the office or may be to a bank employee for some tips. For that particular task these various people who offer us advice become our financial planners.
However with all information available on of the internet the role of all intermediaries has diminished (if not completely eradicated). You can buy policies online, file returns online and get all the required information (reviews, form, and quotes) at a click. So why do you need a Financial Planner (if at all). Does everybody need a financial planner? Yes and No? (see that’s a safe and politically correct answer)
Who is a Financial Planner?
They are people who are professionally qualified to help a person deal with various financial technicalities or simply aid a person in planning his finances better. Always choose a financial planner who is qualified and has the relevant experience. Just because someone can file returns and can research about products on the internet does not make a person a financial planner. Check for qualifications before you hire him. You can choose one according to your specific need.
Why Do You Need a Financial Planner?
I have a common cold so maybe I will just take a few home remedies and treat myself however if I break my leg I will definitely run (or maybe limp) to the doctor. So sometimes in our lives we all need to consult a specialists; Financial Planners are specialists of the financial world.
Example I: Priya has just started working; she is 26, single with no responsibilities she gets Rs. 40000/month (in hand). The company deducts TDS and her peers advise her about the required instrument for tax savings and filing returns. She feels she has more than she can spend and is quite comfortable with her financial conditions.
Example II: Ajay’s take home is Rs. 40000/month; within two months of after he started working he bought a car; he pays his EMIs, he has started a SIP for himself, invests in equity from time to time, he plans his tax savings in advance and divides it between equity and fixed income products. He is also 26, single and does not have dependants. He researches for everything online, buys his insurance online, get advice reviews online before reaching a decision. However recently Ajay has been a little confused as he wants to buy a house in a couple of years and is unable to plan just how exactly he should go about.
We see two people almost in a similar situation can have a varied approach. Ajay is meticulous and plans everything in advance; Priya is cool! Though there is no saying that who will be more secure financially a few years down and there is no right or wrong but a little planning never hurt anyone.
So What Does Ajay Do? Ajay took financial planning services and this is what the planner advises him after he got a financial plan
ü Time Frame: After evaluating his current savings and the savings pattern the financial planner told him to have a time frame of 3 years in mind to plan for buying a house.
ü Evaluate the potential options: The planner also tells him to have a few potential options (houses or flats) in mind so that their rates can be compared to what Ajay has or would have in a few years. This will help in bridging the gap between the actual rates and savings keeping the inflation trends in mind.
ü Restructure the Salary: Reduce the basic and increase allowances so that take home increases and the tax implication reduces. This will have a twofold benefit: a) more disposable income in hand means more savings. b) this would be highly useful when he starts paying his EMIs; more income flow would be required.
ü Pay off Other Loans: Paying of other loans makes it easier to get a home loan and also reduces your burden further when you start paying your EMIs.
ü Keep a contingency fund: Another valuable given by the planner was not to stretch yourself and put everything in the house; always keep a contingency fund.
ü Saving Pattern: Ajay is advised to continue investing in equity and slowly move towards safer options a year down the line and choose balance MFs or Gold ETFs.
So Did Ajay need Financial Planner? The financial planner gave Ajay some practical and useful advise after evaluating his saving pattern and objective, this is not the only way to do it somebody else might plan it differently. Ajay got some useful information which he was not aware of and some tips on how to plan his finances better.
Advantages of Getting Financial Planning Services
- They are experts trained in their fields so can give you professional and valuable advice.
- They know taxation laws, know more about banking guidelines, and can tell you how to use a law for your benefit. They are better informed about financial products.
- Offer an objective analysis; something that you might miss.
Choosing a Financial Planner
- Qualifications: Obviously the most important thing is the qualification as you are hiring them because of it. Don’t just be impressed by the name of the course printed on the card check if it is a legitimate one offered by a recognized institute.
- Check for Referrals: You could speak to a few friends check on the net etc for someone who is known to be honest and good. Avoid those who push products like insurance etc for commissions
- Fee Structure: Check the fee structure; do they charge per financial plan or is as per the asset base.
Whether you consult a financial planner or not can be based on your personal choice and the condition of your finances too. In the above example Ajay hired financial planning services for a specific need; he may choose to consult him after that on a regular basis or may not. There are many people who consult planners for all their objectives like taxation, retirement planning, loans, investment etc. In today’s world when your are pressed for time and there are so many financial products to choose from a financial planner can give sound and valuable advice. Financial Planners in India can help you in finding your way through the financial maze so choose well and buy some peace and make you money work better for you