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Aadesh Kumar Jain.S is a CERTIFIED FINANCIAL PLANNER CM. Interesting article published by him on Financial Planning for Young Indian was published in Financial Planning Standards Board, India Journal. Since the article has been appreciated by many i thought i should share the same with readers.

''' == Financial Planning for the Young Indian Aadesh Kumar Jain.S, CFPCM CEO, Signature Financial Services =='''

Background

There is growth across length and breath of the country. Whether it is, Infrastructure, Banking, Real Estate, Software, Hospitality or tourism, you hear Positive News, Growth, and Bullish Expectations. Be it Institutional Investors (Indian or Foreign) or Mutual Funds they are all are bullish about the economy.

The story behind the story is that never in the history of the country have there been so many young people contributing to the growth of the country. They are young Software Technology professionals, MBA’s from top business schools in the country, the Entrepreneurs who are willing to go against the tide.

With significant amount of disposable income at hand and enormous amount of spending opportunities available, the question that arises in the minds of the people is: Are the youth of today in position to manage their finances effectively? The Endeavour is to find answers for the questions below to get more clarity on the Concept of “FINANCIAL PLANNING FOR THE YOUNG INDIAN”

Questions to Ponder

•	How old is your mobile and when do you intend changing?

•	What are the other electronic gadgets that you own and what is the next in your shopping list?

•	What is the frequency of socializing?

•	How often do you go out shopping, do you purchase what you need or buy what you like?

•	How many credit cards do you own, and are they charge cards or roll over credit cards?

•	What is the contribution made by you to your family expenses

•	How often do you withdraw cash from your Bank Account / Credit Card?

The list could go on and on, the idea is not to find fault or tell the educated youth of today what to do and what not? The above questions have to be read in conjunction with the past experience of an individual especially during college days the amount of pocket money that was offered, probably a three figure amount and for a lucky few a few thousands a month.

From Graduation to a dream job with a five figure income. An individual has been catapulted from a few thousand rupees of pocket money, to have one year’s pocket money (some times much more) in one shot. The thought provoking question is “Are the youth to blame or is it pure lack of financial awareness.

You many wonder as to why a Financial Planner is raising so many questions at one go. The objective is not only to create awareness, however also to build a STRONG FOUNDATION. These questions also contribute to the transformation from a GOOD LIFE which we are in now to a GREAT LIFE.

What to How

Five Habits to a GREAT LIFE and a GREAT INDIA for the World.

''1.	Create a Budget before you get the pay cheque / Salary every month. Review against Budget and Actual Amount Spent.

2.	Learn the Basics of Accounting / Cash Flow Management.

3.	Use your ATM / Debit Card more often and never use your Credit Card or use it sparingly.

4.	Pay your self first, in other words SAVE FIRST and Spend Later. Understand Every RUPEE saved is EQUAL to A Rupee EARNED.

5.	Stay Healthy.''

After Learning to Walk, its time now to start running / Sprinting.

Conceptual Understanding

The essential elements of Financial Planning are briefly listed below.

Insurance Planning:

Every good financial plan needs to start with a Good foundation by protecting the risk. When we say risk we not only mean life insurance & health insurance, but also Insurance of valuable assets, Liabilities etc.

The purpose of life insurance is to lessen the financial impact associated with the death / unexpected loss of assets / unexpected health challenges. By planning for these situations, you have the opportunity to preserve your existing family assets and also replace the income that would have been earned.

Life Insurance is to provide financial protection for your dependent family. Without the continued benefit of your income, your family may have to compromise on their ongoing expenses for housing, transportation, food, clothing, etc. Life insurance can also bring peace of mind, knowing that these risks are covered.

Life Insurance should be selected to protect the Life Risk and should not be bought for the great returns it offers. We should also balance the cost and investment component, hence it is advisable to get a Term Insurance cover and invest in Postal Savings Schemes, Mutual Funds, Direct Equity, Real Estate and options are endless. You need to understand that Insurance & Investments are separate and hence don’t mix them.

Retirement Planning:

As living too short can be planned with Life Insurance Planning, Retirement Planning covers the problem of living too long and hence it is an integral part of your overall financial plan.

Strategies are designed to suit individual goals and comfort level as well as to take advantage of tax saving opportunities. For any plan to be effective, it is necessary to implement these strategies and to review you’re the goals periodically.

Young person, and we are talking about retirement, but most of the young people today want to retire at age 40 or 45. Retirement necessarily doesn’t mean stopping work when you can work no more or retiring at age 58.  The modern age retirement means, you retire when your Investment Income surpasses your Salary or Active Income. In other words you can stop working and still maintain the same life style. Inflation and Interest are factored to know the exact amount of Retirement Fund.

The key starting point in reviewing your retirement needs is to determine an accurate estimate of your expenses during retirement (The Age Chosen by you) many pre-retirement expenses will end once you retire, such as office parking, business lunches, etc. On the other hand, other expenses may increase like Travel for leisure activities or for religious purpose, and later part of retirement towards Health related Expenses etc.

Next, you need to determine how best to utilize your various income sources in retirement. You need to consider the Asset Allocation, before retirement and during retirement, Liquidation of Non-Cash Assets to meet with retirement needs, and determining which assets to use first. The decision to redeem assets may have significant impact on the plan, as it will decide how long the funds will last, the tax implications during retirement and at death.

Investment Planning:

Living too short or living too long, both are covered in the previous two topics, but in case of Emergency, proper Investment Planning plays a Vital Role. Any good investment plan is one which is balanced but diversified, absorbs Risk and Maximizes returns

Create an Emergency Fund:

An emergency fund is usually a separate account that you maintain to meet unexpected and important short-term needs such as a car repair or a new appliance or a sudden health crisis. Emergency funds are established to minimize the effect of an unexpected event such as a temporary job loss or reduction in income. In difficult times, you do not want to be put in a position to sell assets at a reduced value. Ideally Six Months Living expenses are required to be set aside as Emergency Fund.

Asset Allocation

Asset allocation is the process wherein you match your risk tolerances and financial objectives to your investment portfolio. Selecting different asset types (commonly know as asset classes) may reduce the risk of your overall investment portfolio. Most common asset classes are,

•	Cash or short term investments (savings accounts, money market accounts, etc)

•	Fixed Income investments (CDs, bonds, etc.)

•	Equities (domestic and foreign stock, Equity Mutual Funds etc.)

The decision on how we should allocate your investments will depend on a number of factors, including your investment objectives, time horizon, attitudes toward acceptable risk and desired return; and tax bracket. The basic premise of asset allocation is by diversifying your investments over a number of different assets and asset classes; this reduces the risk of the entire portfolio while maintaining your desired long-term return rate expectations.

Pay your self first, in other words SAVE FIRST and Spend Later.

The best way to put this in to use is to start Systematic Investment Plan in Mutual Funds. A specified amount is invested each month in selected managed Diversified Funds, The Systematic buying of units in such funds is not only a sound savings regime; it enables you to effectively average the purchase price of the units over the life of the program. This phenomenon is known as ‘Rupee Cost Averaging’.

Normally we are worried about returns on the products and wait endlessly for the ideal investment and in the process lose a lot of time. Please understand, if you don’t save money regularly, on what amount will you calculate the returns?

For Example, if you can save Rs.5000/- Per Month for 5 Years you would have saved Rs. 3 Lakhs, if you had spent the money, where is the question of calculation returns on the Money Spent? A Financial Planners job is to plan your cash flow and help you save that little extra money, and to place them in right investments to give you a reasonable return.

Income Tax & Estate Planning:

Tax Planning involves the art of Minimizing taxes by investing in Tax favored instruments and planning well in advance.

Estate planning is the most essential part of any financial plan. Many people believe estate planning is only for the wealthy, a belief that is simply not true. You should have an estate plan to dictate your final wishes. An estate plan allows you to decide how your assets are distributed, both during your lifetime and at your death.

When preparing an estate plan, it is helpful to understand some of the legal documents, concepts, and strategies.

•	Last Will & Testament which could be a Simple Will, Living Will •	Durable power of attorney for health care proxy. •	Durable power of attorney for finances

Conclusion

Understand, you being good in your field of work would ensure higher growth, higher salaries and higher income but understanding the concepts of saving, investment, tax planning will ensure a higher Net Worth.

Also note that the Financial Planner doesn’t have a magic wand to generate the great returns. The role of a Financial Planner is to put a plan in place, implement & monitor the same year on year, thus minimizing the losses and generate a constant growth.