Importance of Financial Planning
Recently, one of my friends forwarded me a story titled “Can you sleep when the wind blows”. It’s a nice story which partly answers the above questions. The story goes like this –
Years ago a farmer owned land along the Atlantic seacoast. He constantly advertised for hired hands, however, most people were reluctant to work on farms along the Atlantic. They dreaded the awful storms that raged across the Atlantic, wreaking havoc on the buildings and crops.
As the farmer interviewed applicants for the job, he received a steady stream of refusals. Finally, a short, thin man, well past middle age, approached the farmer. ‘Are you a good farm hand?’ the farmer asked him.
‘Well, I can sleep when the wind blows,’ answered the little man. Although puzzled by this answer, the farmer, desperate for help decided to hired him.
The little man worked well around the farm, busy from dawn to dusk, and the farmer felt well satisfied with the his work. Then one night the wind howled in loudly from offshore. Jumping out of bed, the farmer grabbed a lantern and rushed next door to the hired hand’s sleeping quarters. He shook the little man and yelled, ‘Get up! A storm is coming! Tie things down before they blow away!’
The little man rolled over in bed and said firmly, ‘No sir, told you, I can sleep when the wind blows.’
Enraged by the response, the farmer was tempted to fire him on the spot. Instead, he hurried outside to prepare for the storm. To his amazement, he discovered that all of the
haystacks had been covered with tarpaulins. The cows were in the barn, the chickens were in the coop and the doors were barred. The shutters were tightly secured. Everything was tied down. Nothing could blow away. The farmer then understood what his hired hand meant, so he returned to his bed to also sleep while the wind blew.
All of us face some degree of harsh winds in our lives. It jolts lives of people who are caught unaware & unprepared.
Harsh winds could come in the form of
- A close relative’s serious illness or accident which requires urgent arrangement of loads of cash;
- Death of an earning member;
- Daughter / son’s wedding expenses going way above the savings or budget;
- Unplanned pregnancy
- Disability (Permanent or for even for couple of months)
- Loss of Job
- Property damage due to fire or accidents.
- Serious damage to any expensive asset/s requiring major repair or replacement.
And hundreds of other things which can go wrong and cause our life and financial health to tremble & be blown away in the wind. But if we are well prepared; then we can also sleep when the wind blows.
We sadly cannot secure ourselves from all the blows that life is going to through
our way. Most of us cannot prepare ourselves for emotional or psychological losses, because it requires lot of emotional strength & stability. But securing ourselves against financial turmoil is not as difficult.
We can, to a great degree, plan and secure ourselves against events that can put a bad strain on our financial health. We can insure ourselves against almost all the risks that we face in our lives. We can plan, save and invest appropriately to provide for all the financial needs that are expected to, or unexpectedly may, arise in our lifetime.
The good news is that options to secure our financial future are available online at a very low cost. If we have the required knowledge, we can bypass all intermediaries’ i.e. brokers / agents & buy these products online directly from the company websites.
Online Term Insurance for 1Crore Rupees is available at meagre cost of 500-1500 rupees per month depending on the age & medical condition. This is cheaper than couple’s movie ticket on any weekend.
Most mutual funds have their own simple online investment vehicles or can be accessed through through MF Utilities platform ( https://www.mfuindia.com/ & https://mfuonline.com/ ) or CAMS online ( http://www.camsonline.com/ ) or Karvy MFs platform ( https://www.karvymfs.com ) with zero additional costs. Now MF investments can be done through any smart phone using different user friendly phone applications.
All insurance products can be bought sitting in the comfort of your
homes using phone or a computer.
But it is imperative that one seeks professional guidance on financial planning and investment planning if he/she does not have the necessary skills to create an optimal portfolio that seeks to achieve all their important financial goals. Services of a financial planner are also required to evaluate the insurance cover that would suffice the need to secure one’s human capital. INR 1 crore might seem like a big amount and a sufficient insurance cover today, but the value of INR 1 crore will have depleted in real terms to around INR 31 lacs in 20 years at 6% inflation. Simply put Rs. 1 Crore after 20 years ≈ Rs. 31 lakhs today.
To chose between different advisers or to evaluate the quality of investment advice being provided, fundamental level education is required. Lot of options are available for one to get training on financial planning and investment planning. Professional courses are available which can help individuals master the art of financial planning and use the knowledge not just for managing their own investments, but for additional income by advising others. Financial planning will always remain a lucrative field if one chooses to make it a career path.
So what we really need is to just fight the lethargy & learn a few things that can help us “Sleep when the wind blows”.
Program Head-Financial Analysis