One myth about financial planning is that it is only required if you are wealthy. However, It makes more sense for financial planning if you don’t have enough wealth and you lead a tight budgeted life. It also makes sense to some extent that we hire a professional Financial Planner help. Here are some common thoughts we all have which we all need to rethink and add that element in our financial planning.
• I don’t Need Financial Planning as I don’t have enough money
This is the biggest misconception we all have. Mind it that if you have enough money, then you need wealth management but if you don’t have enough you for sure need financial planning. Financial planning is a tool for wealth creation as well as managing your expenses, health Insurance cost,
securing the life cover whereas wealth management is only about managing and growing your wealth. Once you become wealthy, then only wealth management will work for you whereas financial planning will work for you always.
• I don’t need any health Insurance or I have health insurance provided to me by my company which is sufficient
We all are aware that healthcare costs have skyrocketed in recent past. Lets take example of Akash, who is married, Has two childrens, also his parents live with him and earns Rs 40000/- per month and has employer provided health cover of 2 lacs, pays an EMI of 15000/-, and has monthly expenses of 20000/- which includes his rent, Groceries and Child education. He saves and Invest Rs 5000/- per month which is not less by any means. What if his father suffers a Heart attack and entire treatment costs Rs 3 lacs. Remember, 3 lacs treatment cost in case of Heart attack is pretty common, its not less by any chance however there are chances that this cost can be higher than that also on case to case basis.
Now, if he needs to contribute 1 lacs, he will have to
compromise with his savings and all his investment planning goes for a toss.
Even if we consider that if his employer provides health insurance cover of 5 lacs which might be adequate, what if he retires. Considering he retires at 55, no health insurance companies would be willing to cover him, even if they allow, they might exclude any pre-existing diseases and would also charge a very High annual premium.
Also there might be a scenario where he might leave the organization and would join a new company which might not offer Health Insurance for their employees.
Its always better to have a parallel self financed Health insurance plan.
• My life insurance is enough to sustain my family after my death
Have we all invested in Insurance for the sake of taking Insurance cover? Most of us do it only to save tax. If we ask anyone how much Insurance coverage you have, Everyone will say that they pay XYZ premium amount per annum and say some vague figure of Insured amount. Are you aware that as a thumb rule, One should have Life insurance of atleast 8 times of their annual Income. We all keep investing in Money back, ULIP and Endowment policies every year. How many of us have Pure Term Insurance i.e. Insurance Plan where there are no returns and even premium paid is not given back, but inturn they offer High Insurance coverage according to premium paid. For Instance, For Insurance coverage of 50 lacs you need to pay annual premium of Rs. 6000/- to Rs.15000/- wheras in ULIP, Moneyback policies you would have to pay Rs 4 lacs to 10 lacs per annum. We will just not go for pure term insurance cover where I have to shell out a very small amount anuualy just because there is no return of any kind and every one thinks that he/she will have only natural death at old age.
Just think what would happen to Akash’s family which runs entirely on his income in a scenario where he meets with an accident on road leading to his death.
• Retirement? Whats that? I have still long time to think about it
Retirement is too far away and once I save Rs 1 crore, I am covered. This was what Akash thought. How many of you can relate to this? Planning for retirement has to start as soon as possible.
For individuals like Akash who have just began their career it is hard for them to think about retirement. Well the sooner people like him start the lesser the amount they have to save for their retirement as with time on their side the power of compounding works wonders for their savings.
The later they start saving for retirement, more is the amount required to save. Also, with today's rising costs, and inflation do you think Rs 1 crore is enough to sustain 20 years post retirement?
• I don’t need to write a will now as I have not enough estates or my estates will automatically passed on to my successors
There is one more myth associated with will planning: I do not have enough estate to pass on so why make a will? It's not about how big your estate is but whether you want to pass on anything to your heirs or not? If yes then, big or small, a will is a must.
A simple process like budgeting also comes under financial planning or a complex process like planning your portfolio also comes under financial planning. For Akash with the help of just an analysis of his cash flow and existing investments and assets and liabilities will be very helpful as this will help him in meeting his financial liabilities and also charting his future financial course.
