What Financial Planning is NOT

Financial planning is at arise and it is the best way to approach your investments for any time horizon. Not a hairline doubt about that. People are really coming ahead to become investors. They have realized that the best way to plan is to get a long-term plan. But as it happens everywhere when we read a particular topic from a lot of sources, we also develop some over expectations or myths. There are some explicit NOT for financial planning. So, knowing these NOTs and being realistic is also important.

The first step for financial planning is to “establish and define client-planner relationships”. Perhaps this is the best time for us as planners to evaluate if the investor is suffering from over expectations. We try to address these unrealistic assumptions and try to make them focus on the real thing.

Some NOTs of financial planning are:

Financial Planning is NOT your household BUDGET implementation: Budgeting is an integral part of Financial Planning but budgets are separate full-fledged exercises. It is more to the individual what kind of method he is comfortable with budgeting his expenses. A financial planner is keen to know how do you do it and what are your expenses. His job is to pinpoint what expense could be managed in a better way or to provide solutions to unnecessary expenses. But he is not at all involved in day-to-day expense recording and monitoring. Budgets are family personal and family level things.

Financial Planning is NOT your ANNUAL TAX SAVING PLANNING: Financial planning is done in a way to save taxes, but it is not like your annual tax exercise. The tax saving instruments like PPF, EPF, NPS or ELSS are advised based on your risk tolerance score and asset allocation. They are not advised only for the sake of saving your annual tax. Today’s tax saving will be important assets in your overall portfolio. Financial planning is a longer process and taxes are yearly things. Financial Planner will take care of your taxes but his eyes will be on larger targets which are at distance. So just do financial planning for saving annual taxes, aim more.

Financial Planning is NOT an “agreeing with you” process: We often find investors justifying their past mistakes and past investment mess. They think financial planner should agree to their past mistakes. Till empathy, it is right but, calling a mistake that it is correct and this is how the world makes investments, is not what you have hired a financial planner for. I am not saying that you surrender everything to the planner- No but never ask him to agree to your mistake. Put the ego aside and let all mistakes be corrected. Remember when there are yes and no in a discussion, then there is an actual discussion.

Financial Planning is NOT just RETIREMENT PLANNING: If you are young many prospects think that it is just retirement planning. They procrastinate it for the same reason that they have many years to go, so planning can be delayed. Financial Planning is a process that starts when you get the next salary or income. It starts right there and co-exists with you throughout life. It is a way to plan all your life events like childbirth, the marriage of your sister or your dream vacation or setting up your business. A retirement is just an event. It goes beyond retirement too and plans for your medical needs, redistribution of wealth and making arrangements for your spouse when you are not there.

Financial Planning is NOT just FINANCIAL ADVISORY: Some prospects come with a very focused mind- Just investments, performance, returns and number crunching. Making a portfolio and managing it is a major part of the financial planning process, but it is a great way to learn and improve on behavioral finance. We as planners talk, write and use a lot of this science because behavior towards investment creates the difference between INDEPENDENCE AND INTERDEPENDENCE. We aim to educate and correct the behavioral mistakes that client often makes just because of his past exposure. Trust him and his instincts.

Financial Planning is NOT your THRILL: As Charlie Munger says “if you want thrill -go to Casinos in Vegas”. A lot of investors comes with a pre-mindset about some thrilling investment concept or a product. Once an investor wanted to invest in currency derivatives as he has heard that it provides quick bucks as per him. I made him realize his speculative nature but he insisted on investing some amount. I had to disappoint him and say NO. Likewise many clients come with an incline to invest in IPOs or PMS. A financial planner checks suitability and low-cost alternatives, so when he says no, the investor thinks he is getting bored. Trust me “Money Making is a boring process. It is doing, redoing and again doing the same thing repeatedly”. It’s the deviation where people lose money.

These were some realistic corrections and setting things clear for investors who are and seeking financial planning. I hope these were new learning or refresher in an informative manner.

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