Financial planning is not a perfect science. For most people who are not obsessed with the large-cap, small-cap, mid-cap, goal setting, asset allocation and such stuff, it is as painful an experience as visiting the dentist, if not visiting the oncologist!
What happens is when a customer, or a client, or a potential client, comes to meet a financial planner, the planner talks to the client somewhat like this:
Planner: Where do you work, and how much do you earn?
Client: About Rs 5 lakh is the gross salary between my wife and me, and our take-home is Rs 2 lakh and Rs 1 lakh respectively.
Now, the planner who has a lower income thinks that the client should spend Rs 1 lakh per month and save Rs 2 lakh per month… And that Rs 1 lakh should include the EMI.
The client thinks he should spend Rs 2 lakh per month including the EMI, the Rs 1 lakh should be set aside for vacations; anyway, there’s provident fund for retirement!
Another problem with financial planners is they make life sound like there is nothing to do except to make plans, do Systematic Investment Plans, write a will… And then review it once a month at least, switch once in a year… phew! Exhausting, is it not?
At the end, it is like going to a dentist who says:
(a) You have not been brushing regularly.
(b) When did you last floss your teeth?
(c) Even scaling, you have delayed it by a month or two.
(d) Two more of your teeth need to be removed, and we need to put an implant.
(e) Sorry, that will cost Rs 94,000.
How many of us will like that experience? (Not me, my dentist is a good singer and she even sings for me when she is removing my tooth!) Financial planning is, of course, worse. It has math. And the planner asks, “Do you know how much investing Rs 40 a day will become if you invest for 30 years? No no, make it 35…” And just when the client is recovering, he says Rs 4,54,65,425! Wow. The client is feeling worse. OMG, I wasted 18 years of my life not knowing this.
He is then shown how he needs Rs 3 crore for his daughter’s education in India, Rs 8 crore for her to study abroad, Rs 6 crore for her marriage and Rs 28 crore for his retirement. Assuming that he has only one kid. Oh, another is on its way? Just double all the numbers… Except, of course, the retirement.
Financial planning is good for you. However, the process through which a planner can put you through is not so great!
What happens when you do not go to a financial planner? Well, you need to do it yourself, of course. You need to have the discipline to learn about investing, keeping records, do the asset allocation, know when to remove from equities, and when to invest in equities, etc, etc. That is not really easy.
Take your option. Which way do you want to go?
PV Subramanyam writes at www.subramoney.com and has authored the best seller ‘Retire Rich - Invest C 40 a day’