There’s no set recipe for a financial plan

We have all heard about the story of the blind men describing an elephant — one describes it to resemble a pillar, another feels that it is more like a broom and yet another avers that it resembles a pipe.

That would seem to be the situation in the world of financial planning.

Confusion is being created and perpetrated by various product sellers about the true nature of financial planning. Every bank, mutual fund and life insurance company is claiming to do financial planning.

Insurance companies have retirement plans and children plans to take care of corpus building for retirement as well as for child’s education. A mutual fund may similarly be promoting the concept of saving for a car, vacation, home — meeting a need through one of their plans.

What they are really doing is matching needs with products. There is a term for that — need satisfaction selling. This is an established method in sales and a useful one at that. But this is not financial planning.

The primary difference is that financial planning is not about addressing different needs in exclusion. Rather, it is a complete 360-degree approach on everything. It is holistic and seeks to verify if the stated goals can be achieved within the time frames sought, given the individual’s financial situation.

Financial planning facilitates goal achievement, through appropriate financial management. It gives you a blueprint/ framework to achieving goals along with signposts and pathways to make the process reliable, foolproof and dependable.

Now, it should be clear that just matching the cash needed for a child’s education is not sufficient. Nor, for that matter, is just matching all the goals with some plan/ scheme. That is band-aid treatment — not a real solution.

We need to see the whole, not just address the parts with patchwork solutions. Financial planning is like a wellness programme — the ultimate aim is a healthy body. For that, it is not just foods and vitamins which are essential, it is also exercise, proper sleep, rest and relaxation.

Addressing the needs of the body with good food alone may not be sufficient for ensuring wellness.

The situations of one’s life and their financial impact is something that a financial plan should incorporate. A financial plan has to be detailed and comprehensive.

In real life, we would need to consider all the expenses, their ebb and flow over time, etc. Inflation and changing requirements could in future change the income pattern.

Inflation, in particular, can play havoc on personal goals. For instance, changes in inflation can put paid to a cherished want — like a holiday — as other needs, having a higher priority, will have to be met first.

We see that spouses sometimes stop working or that their salary income stops as they consider a venture on their own; there could also be unforeseen expenses due to contingencies.

The value of investments could rise or fall, new goals may creep in, existing goals may get modified (a 2BHK apartment may no longer be as attractive as it was five years ago and a 3BHK may now be the cherished goal). More often than not, goals will change over the years.

The interplay of these needs is to be understood properly to find out what the impact would be, financially. A robust plan will be able to show you the impact of one aspect on various other areas.

A plan should have enough slack to adjust to changes and shifts, as is want to happen in life. Such ability to handle all areas of one’s life and the ability to move forward after adjustments should be embedded in the very heart of a good financial plan.

The writer is a certified financial planner with runs Ladder7 Financial Advisories and can be reached at ladder7@gmail.com