Back in 2001, a father of young twin brothers, Ajay and Rahul, decided to gift his sons Rs 1,00,000/- each on their 21st birthday. Both Ajay and Rahul were almost alike in every sense. They both studied in the same engineering college, and both went to work in the same IT firm in Mumbai and got happily married.
However, there was this one difference. By the time the twin brothers turned 40-year old, Rahul’s gifted Rs 1,00,000/- had skyrocketed in value to approx. Rs 1,45,19,274/-. And Ajay’s gifted money lost its value to a meagre Rs 4262/-.
How is it really possible?
Have you ever wondered what can make such a mountainous difference?
It’s not that one wants to accumulate wealth and become rich, and the other doesn’t. The difference lies in one thing.
The Right Financial Planning
Let me explain.
Ajay used his Rs 1,00,000 to buy two Royal-Enfield Bikes (an Eicher motors product) around Rs 55000/-each at that time.
Rahul invested Rs 1,00,000 in buying 5714 stocks of Eicher Motors for Rs 17.50 per stock.
Both Ajay and Rahul bought their assets from the same company. The bike’s value reduced by 95%, while the stock’s value appreciated by 14419%.
I know this is a lifetime, extraordinary example but here’s the point.
The exact amount of money used differently turned around their lives and their families lives forever. And this is just one decision. Rahul knew the power of proper financial planning. So he naturally made several good financial decisions in the last 20 years.
He controlled the outflow of his money and stretched every saved penny to its maximum potential. As a result, he could spend on things he loves without guilt. Travel with his wife and kids to various exotic locations in Europe and send his kids to one of the best colleges in America, and his retirement is secured. But Ajay and his wife have so many small-small and sometimes even big fights because of the financial crunch and tight situation. And he is always worried about the big expenses that suddenly come up in future. Not a good situation to be in, right? And this is the reason I am writing to you all today.
The Right Financial Planning Can Actually Make The Difference Between Living A Good Lifestyle And Staying Broke With the Same Income.
Let me give you one more example.
Today with Rs 100, you can buy 10 chocolate bars. Let’s say, in a year, chocolate prices jump to Rs 12. Now you can buy only 8 chocolates. That means the purchasing power of your Rs 100 is lost by Rs 20.
This is inflation (which was approx. 6% in India in 2021).
That means inflation is eating your hard-earned money right now if you are not investing it rightly.
Your money is exposed to three major threats
One is inflation, as I just shared. The second is getting lured into buying things you don’t need. And most of the time, it’s not your fault. Look, companies are spending billions of rupees hijacking your brain and seducing you to give away your money. And if you have not thoughtfully planned your finances, you become the victim. You end up buying the latest gadget, new limited-edition sneakers, and throw extravagant parties to your friends, and a lot of your money goes down the drain.
Financial planning is not just for the future – it is for your today, tomorrow and retirement.
Did I mean you cannot spend money on personal luxury and comfort at all? No, I do not mean that at all. In fact, if you plan a little, you can enjoy the things the world has to offer and that too without guilt like Rahul from our first example.
Now let’s look at the third biggest threat. Most people who lack the right financial planning could never enjoy life. The wealthy multiplying power of Compound Profit means Profit upon Profit. It’s like money producing baby money. But the first step is to start investing money in the right place, at the right time and for a suitable duration. The sooner you start the better.
62% of Millionaires rely on a Financial Planner to help them manage their wealth
A professional planner can closely look at your life goals, expenses, future plans, lifestyle, retirement plans, and risk appetite to create a custom wealth-creation plan for you.
Here are some simple elements to kick start your financial planning
Draw out an entire road map of all the financial goals of your life. For example, buying a car, buying your first home or second, travelling plans, your child’s higher education, your son or daughter’s marriage, investing in your dream projects, retirement saving, saving for a medical emergency, starting a charity foundation etcetera. List them as short term, medium-term and long term.
Now list details about your income, cash flow, monthly expenses (housing, utility and other recurring expenses), savings, debt, investments, insurance and other financial instruments you may have.
You need a clear, accurate picture of your financial status. No guesswork, no false assumptions. The next step is to start allocating funds in different buckets, for instance – monthly expenses and bills, emergency funds, personal and family wants (clothing, dining out, entertainment), saving, investment and retirement. Make sure you protect your financial stability and your family safety with the right insurance. And as your income grows with time, plan to have at least 6 months of your living expenses as your emergency fund and increase your contribution to your retirement plan. Try your best to get rid of credit card debts and other high-interest loans, if any. Switch to minimum interest for your long term loans like a home loan.
Now the only way to stretch every rupee you earn to its maximum potential is to have the right investment strategy. So carefully assess various investment options such as SIPs, stocks, mutual funds, Gold or Sovereign Gold Bonds, property, and private equity, etcetera. You want to invest with the potential to earn compounding returns. And in today’s market, don’t just settle for 5% or 10% returns when you can get an 18% or 25% or even more boost on return in profits year on year. You see, it is a matter of your income, current lifestyle, the financial security of your wife and kids, safe retirement and becoming financially independent in future.
It’s critically important to choose the right financial planning consultant.
You do not want someone who just sells you financial products to get big commissions from their partners. You want a financial advisor who can help you with objective, unbiased, experience-based advice. No matter if you are 25 years of age or 35 or 55, you can start financial planning today. An experienced financial planner will create a custom plan that works for you. You will feel a sense of satisfaction and confidence you never felt. Because you will now have a solid financial plan backing you to cut down on market downturns, take advantage of wealth-multiplying investments and have emergency medical & nursing funds for the future. So start today. You do not want to regret it later, like Ajay.
(By Videsh K Totaare, MD & CEO, Archers Wealth Management Pvt Ltd)