What Does Financial Planning Mean?

During a recent discussion, which was held as part of the investor education and awareness initiative of Aditya Birla Sunlife Mutual Fund in association with Outlook Money, experts spoke about the importance of financial planning and the right ways to go about it. The experts who participated in the discussion were K.S. Rao, head of Investor Education and Distribution Development at Aditya Birla Sun Life AMC; Lovaii Navlakhi, Founder and CEO of International Money Matters Pvt. Ltd; and Harsh Roongta, a personal finance and tax expert.

“Most people assume that financial planning is a highly complicated task. They fear that it involves taking ownership and action. All these factors lead them not to get bound to a plan,” said Rao, kicking off the discussion.

Rao added that if people can get past these fears, they would realise that financial planning provides them a direction on how to better manage their money so that it is aligned with their future goals. “In essence, financial planning provides people greater peace of mind and a unique perspective,” he said.

People also fear the numbers that they may need to get involved with in the process. Navlakhi said that financial planning goes beyond just pushing out numbers. “Of course, one of the first steps of financial planning is to identify the quantum of money needed for fulfilling a goal. But beyond this stage, there are numerous other stages like hand holding of the client to make a financial decision, personal financial guidance like the type of job one should take, the city to which the person should relocate in order to commit to that job, should they send their children to study abroad or in India etc. It is these types of questions which a financial advisor can assist in answering if the relationship between the advisor and the client is strong enough, and the earlier people start with the advisor the stronger their relationship gets,” he added.

The ultimate idea is to have a strong financial plan for achieving one’s goals, and in this age when most of the things people wish for are interconnected with each other, a financial advisor can help people sort out the choices in life and chart a suitable course.

People who do get comfortable with the idea of taking advice approach friends or relatives instead of registered investment advisors (RIA) or certified financial planners (CFP).

“Although friends and relatives giving financial advice may not be the best source, but it is a good starting point,” he said, adding that they play a vital role in establishing trust in financial planning.

“But there is a limit up to which one should listen to friends and families and one should not totally depend upon them. If people need a comprehensive view regarding the priority of people’s resource deployment, risk profiling, and others, then the need for an expert arises,” he added. And, the only people qualified for providing this level of advice are RIAs and CFPs.

Apart from the fear of commitment, people also have the notion that financial planning requires a huge sum of money. Rao rebuffed this notion. “Contrary to what people believe, if one has a lesser amount of money, they may need to plan more rather than someone who already has a lot of money and is not worried about fulfilling certain goals because he has enough,” he said.

Disclaimer

• An Investor education and Awareness initiative of Aditya Birla Sun Life Mutual Fund.
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