Money management: What it involves and how a good financial planner can help

20 Jan, 2011

With salaries on the rise, it is easy for a person to be lulled into a false sense of security when it comes to financial matters. Most people often forget that record levels of inflation are currently taking a big bite out of these salaries. Regardless of the state of one`s finances, there is never a bad time to create a personal financial plan - a road map that details various life goals and ways to achieve them.

These goals may vary depending on the stage of life a person is in and his or her priorities. They usually consist of saving for a home, retirement, children`s education, vacations, or a variety of other life contingencies.

The financial planning process allows you to step back and take a `big picture` look at where you stand money-wise and to gauge what types of adjustments need to be made to take you closer to your goals.

If you are tackling the exercise actively for the first time, there are a few important points to consider as you get the process off the ground.

Prioritize: Remember that not all financial goals are created equal. Scenarios that are around the corner (e.g. a child`s education) may call for more focused planning and budgeting than those that are in the distant horizon (e.g. caring for an ageing parent).
Prioritizing your goals by their order of importance is also helpful. For example, you may have a second car on your wish list, but can choose to postpone buying this while you save up for a down payment on a home.

Create a budget: A realistic and detailed budget is an excellent tool to keep your financial plan on track on monthly basis. It gives you visibility into your main expense categories and allows you to calibrate your spending levels as required.

Set a target savings rate: `Pay yourself first` is a useful maxim to live by; one that will keep you from overshooting your spending limits while making sure these are in line with your goals.

Review your insurance coverage: How much insurance coverage, such as medical and life, does one really need? The answer depends on a set of variables that includes age, health, number of dependents, and liabilities. An objective review of these factors will enable you to maintain coverage levels that are right for you.

Keep good records: Many people miss out on important tax breaks because they fail to keep records of deductible expenses. Meticulous record keeping will allow you to maximize your deductions and lower your tax bills.

Review your investment options: Combine your propensity for risk with your future cash flow requirements to select investment vehicles that are right for you. A thorough analysis of your own situation will help you create a balanced financial portfolio.

While it is possible to personally tackle some or all of these activities, it requires discipline and a substantial time commitment to make it work. A good financial planner can help you, not just in setting goals, but also in achieving them.

Experienced planners possess a comprehensive understanding of a wide range of investment opportunities. They can study your financial situation, risk tolerance, goals, future cash flow requirements, insurance needs, and investment options before coming up with recommendations and a comprehensive plan tailored to your needs. Their expertise is likely to cover several aspects of financial management, of which the main ones are:

Risk analysis and planning: To evaluate a client`s risk exposure and select appropriate risk management tools that include general, life, medical and disability insurance.

Retirement planning: To help the client with retirement planning, review their retirement employee benefits (e.g. EPF, PPF) and make recommendations to keep their contributions in line with their retirement needs.

Investment planning: To assess the client`s investment needs and risk tolerance and provide suitable solutions aimed at wealth creation.

Tax and estate planning: To guide the client through the nuances of personal taxation and estate planning, including the creation of wills, gifting schemes and joint property ownership.

Advanced financial planning: To incorporate all the aspects of a client`s financial situation in order to create a comprehensive and achievable plan.

`Caveat Emptor` or `Buyer Beware` is a guideline that applies to the hiring of financial planners, as it does in working with other professionals. While there are individuals in the field who operate based on inflated qualifications, there are also many others who truly have the credentials - recognized industry certification, relevant education and work experience, and a clean reputation - to manage your money and make it work harder for you.

The article is contributed by Ashish Prasad, director & chief executive officer (CEO), Indian Institute of Job-oriented Training [IIJT].

http://www.myiris.com/newsCentre/storyShow.php?fileR=20110120180517194&dir=2011/01/20&secID=livenews

Ashish Prasad, CEO, IIJT.

expressbuzz.com, Friday 28th January

CHENNAI: If you are thinking financial planning is nothing more than chartered accountancy, think again. A CA will advice you mostly on matters related to corporate taxes but a certified financial planner (CFP) offers you guidance on a range of personal financial issues.

Emerging Indian markets

Financial planning is emerging in India. “The volatility with which the markets behave has baffled everyone. India is growing fast and is slated to be one of the biggest economies in the world in the next few years,” says Ashish Prasad, CEO and director, Indian Institute of Job Training, New Delhi. Neeti Trivedi, another financial planner seconds him. “After the global economic crisis in 2008, people are more aware and keen to properly plan their investments. They want to make the best use of their finances and are looking for quality advice. The industry is still nascent and from now on we expect only sunshine.”

Challenges

As the Indian markets are dynamic and witness a lot of transactions, financial planners need to follow them closely. Also since there are a lot of planners who are not certified professionally, you would be on a better footing if you obtain a certification from Financial Planning Standards Board India (FPSBI), which is the only certifying authority in India.

“The challenge is not only about getting the certification, but also one must have relationship-building skills since, one has to constantly deal with high net worth individual,” says Prasad. Also planning to needs to be more specific. “With the growing needs and aspirations of financial consumers, there is a need to move from a product-specific to a need-based, unbiased and comprehensive financial advisory,” says Ranjeet S Mudholkar, principal advisor and member, Board of Directors, FPSBI.

CFP certification

Anyone can become a financial planner. Students who have passed class 12 can apply but graduates are preferred. “A lot of engineers apply for this so as to manage their funds effectively,” says Trivedi, who qualified for CA in 2000 and for CFP in 2007.

CFP certification from FPSBI is essential to be a certified planner in India. “CFP certification equips an advisor to develop the right skill sets for serving the consumers in a holistic and ethical manner,” explains Mudholkar.

How to get CFP

To get a CFP certification from FPSBI, you have to clear six modules that will include retirement planning and employee benefits, risk management, investment management and taxation and estate management. The exams are conducted by FPSBI on all working days in major cities and on select days in smaller cities. You can register with FPSBI and the registration will be valid for a year. But, how long does it take for a candidate to clear the certification? “It differs from candidate to candidate. Some may clear within a year and some may take more time,” explains Trivedi.

There are many institutes that offer training in CFP certification. International College of Financial Planning, New Delhi, Indian Institute of Financial Planning, New Delhi, Mandar Learning Academy, Kolkata, and Indian Institute of Job Training, New Delhi, are some of the institutes that offer CFP programmes. Most of these institutes have campuses in many cities. You can register with FPSBI with a token fee of `10,000. If you can not clear the modules within a year, you are required to register again. The test will examine your expertise in the different aspects of financial planning.

Job opportunities

There are two major career options available in this field — you can start your own consultancy, if you have the entrepreneurial instinct or work for banks, mutual funds, investment and insurance agencies, healthcare agencies and broking houses. “A fresher in the field can get anywhere between Rs 2.5-3.5 lakh per annum and a candidate with a CA or MBA can get Rs 6 lakh per annum,” says Trivedi.

                                                                       -- dennis@expressbuzz.com

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