Chapter: 4 | Winner takes it All – Why pragmatic Financial planning is your Trump card?

winner takes it all - retirement series

Chapter: 4 | Winner takes it All – Why pragmatic Financial planning is your Trump card?

Yesterday, Pranav had asked his buddies to note down details of all of their investments, assets and liabilities at one place and bring it along. The ‘homework’ set by Pranav for AK and Rajesh seemed easy to both of them. Pranav also dropped a reminder text in the WhatsApp group that night.

The next morning, at the golf-and-coffee session, AK and Rajesh sheepishly admitted that they would need some more time to list everything down properly.

“But is that really needed. I mean, I remember all of that by heart anyway,” Rajesh asked.

Pranav couldn’t help but smile.

“Well, I don’t intend to question your memory, Rajesh! When I started on this path, I also felt the same. Try listing down everything once sincerely, and you will be surprised at how much you do not remember, or only remember partially, by heart. Remember what they say at Staff College – you know it only if it is on paper!” he said, as he narrated his experience further.

Pranav detailed out his learnings. “Most of the people feel that they know everything about how they have handled and invested their hard-earned money. However, they normally miss out on a lot of things. For example, underestimating the damaging effects of loans and other debts, especially debts like credit card dues and high-interest loans like personal loans and car loan, not remembering the amount of money lent to different people, investments scattered across several banks, insurance policies and other instruments. Such a list could go to multiple bullets for many people. It actually could become very difficult to manage, and one could either lose a lot of own money or miss out on the better part of money management. The very first step in this direction is to simplify and declutter your own money box, but that can only happen if we do some planning to identify own weak and strong spots in it,” he said.

AK felt a discomfort as he heard Pranav mentioning Car Loan. Deep inside he immediately realised that he is going to be schooled on this! But given the trust and bond they together had, he opened up. “Can you elaborate on the loans bit, especially car loans? I am sure you know I have a running car loan at present for my Fortuner,” he said, avoiding the fact that he upgrades and changes his car every 3-4 years.

Taking a loan for a depreciating asset, especially when that particular asset is not a necessity, is counter-productive, Pranav said. “Let me explain. If you get a car for Rs 15 lakhs on a loan at an interest rate of 10-12%, which is the current ongoing level, you will end up paying back upwards of Rs 18 lakhs even if you repay the loan in 3-4 years. However, by the time the loan is repaid, the value of your car would have come down to less than Rs 10 lakhs,” he said.

Rajesh butted in, “But Boss, this will happen all the time. Sometimes you get a good thing and sometimes don’t. And who can keep sitting down with a paper and pen noting down the details of everything to remember forever?”

“Fully agreed Cmde Rajesh Lal and Col AK Singh. So, what is the solution? Simply what you have done all your life in fauj! Plan, plan and plan. If you plan properly in advance, only invest in things that are useful to you as per the plan, and get out of them as your plan indicates, you’re done Rajesh,” Pranav reasoned out.

“I have not even the foggiest of ideas how such an ideal thing can be done”, Rajesh quipped, as if resigned to his fate.

“Then Rajesh, it is my mistake if I’ve not been able to explain it properly. Let me take an example. Say, you are planning to marry off your younger daughter Five years from now when she is 28 years old, and your discussions with others indicate that you need about Rs 30 Lakhs for the marriage if the marriage was to take place today. If the rate of increase of marriage expenses (officially it is called inflation!) is 10% per annum, you know that you will need about Rs 48 Lakhs five years later. Since you have adequate time, you can put those Rs 30 Lakhs today in an instrument which gives you 10% average kind of return on a yearly basis, and you are done. If you do not have this bulk money or have just a part of it, you can easily work out how much you need to put away more on say, a monthly basis, to reach that magical figure of 48 Lakhs.

Same way you can plan for your other requirements like the higher education for self and family members, marriage of another child, expensive vacations, changing of car every 8-10 years, and more such requirements for your future. That’s all that is there to Financial Planning in its purest form. Simply put, ‘Ensuring availability of right amount of money at the right time’ is financial planning,” Pranav concluded.

“Makes sense. You neither have to bother about killing your desire to own something nor worrying to death about investing wrongly into something which will lead you to disaster,” AK said.

“Financial Planning does not merely prepare you to spend, but also prepares you for emergencies and takes away the stress of meeting financial needs in future – whether short or long term. And this is done by analysing your current investments, identifying your future financial goals, how much money you have right now and can spare on a monthly basis, identifying correct investment avenue for each goal, going ahead with those investments in a prudent manner and finally, regularly monitoring if everything is going fine. I know we will not face a situation of loss of income even after retirement, but there can be other possibilities like medical emergency or helping your kids out in their emergency,” Pranav concluded.

“Bhai you have started us out on a new direction altogether today. But just clarify mu small doubt – how are we supposed to do all of this in just a few weeks before we retire?” Rajesh commented.

“You might not need to do all of that. I am just highlighting basics so that you understand the subsequent details easily. All of this is very important to know to plan effectively for future and for a great life ahead,” Pranav smiled, as the group called for their coffee bill.

Gyan Collected:

  • Financial Planning is the strongest pillar you have in your money management journey.
  • Financial Planning is simply ensuring the availability of the right amount of money at the right time.
  • There are simple straight steps one needs to do for proper money management so that one can do away with all the stress associated with investing in the wrong product(s), not having the right amount of money at the right time, or catering to emergencies which cannot be foreseen.
  • Remember – Failing to Plan is Planning to Fail.

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