Everybody earns money with an objective to fulfil one or many of one’s life goals. People use money for purposes as simple as funding their daily household expenses to buying exotic luxuries for a better life. Money can be saved, accumulated and grown to fund various financial goals of a person; such as education, marriage, house purchase, retirement and even passing on as legacy to the next generation. So money earned is either used to fund some of the immediate expenses or some goal in distant future. There are three ways of earning money: first, you earn a salary by rendering service to your employer; second, you earn a profit from your own business; and third, you invest and manage the surplus money and let it grow or give you an income. When money earned is to fund one of the future goals, it needs to be invested in an optimum way to give maximum returns taking into consideration the individual’s risk profile and time horizon of the goal and the taxation aspects related to personal finance. In earlier days, managing money was not so difficult- high interest rates, assured return schemes, government sponsored retirement benefits, few financial products, a strong joint family system, a modest lifestyle and cost of living - all made it simple for a common man to manage his money without any external expertise. The economic and the personal finance landscape have changed drastically since the early 90’s as the Indian Economy opened up and financial sector reforms were undertaken. Considerable percentage of Urban India now has a higher household income and disposable income. Interest rates on debt instruments have fallen from as high as 12% in the 90’s to 7% - 8% today whereas inflation is also in the same range. The number of products and their complexity has increased considerably with no surety of returns. The manufacturers of financial products are generating a plethora of information on personal finance issues which need analysis from the viewpoint of risk, liquidity and appropriateness apart from comparison within and across classes of such products. The cost of living and aspirations have gone up putting pressure on income, which has to generate the best return under the given circumstances. People have scarcity of time in managing their hard earned money. Moreover, the increasing complexity of financial products makes it imperative for an individual to seek experts’ opinion in managing one’s finances in a disciplined manner. This is where Financial Planning as an approach to managing personal finances helps an individual to fulfil life’s numerous goals with available resources. A qualified and professional financial advisor using the Financial Planning approach to offer solutions, products and services in a holistic manner to his/her clients can make a difference to their lives as well as earning an advisory fees for himself/herself.
Posted on: Tue, 09 Jul 2013 04:42:13 +0000
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