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Personal
                   Financial Planning
                        The Need of the Day
building careers




                   Prashant V. Shah
                       CFP PROGRAM HEAD
                   Anagram Knowledge Academy
building careers




            Where you are on the driver’s sit of your life
Expectations of the Participants
building careers
Financial Planning
building careers




       A continuous process through which a planner helps his
       client to achieve his life goals
       These goals may be:
       • Retirement Planning
       • Children Education
       • Recreational Goals etc.
building careers




                       Transact
                         -ion

             Invest
              ment                 Loan




          Surplus
                      Money       Deficit
building careers




                   Income                  Expense            Savings




                            Revenue from
                                                             Investment
                             Investment




                                                 Long Term    Short Term
Retirement Planning?
building careers




                       It is the process of
                       ensuring sufficient
                   financial resources to the
                     retired person so that
                      he/she can enjoy the
                     desired lifestyle during
                      the retirement years
Why Retirement Planning
building careers




                       • People are living longer
                       • Change in demographic profile
Questions People Face for RP
building careers




       • When to start
       • How much to be saved
       • Estimating retirement income and
         expense
Wealth Creation
building careers




       Involves the building of assets by
       means of careful investment into
       asset based investments, usually
       over a long period of time so as to
       achieve an income stream that will
       ensure a continuation of a high
       quality lifestyle in the years beyond
       retirement
Principles of Building Wealth
building careers


                      Start investing early
                                                                                             5.71
                                                         Mr. E           Mr. L
                                                                                             Crore*

                   Investment Starting Age                25               40

                   Investment - Monthly SIP         Rs.5,000/-         Rs.10,000/-

                   Saving Years till age 60          35 years           20 years

                   Total Investment Made             Rs.21 lacs        Rs.24 lacs               1.33
                                                                                                Crore*
                                                               Investment requires time to grow




            25 years                          40 years                               60 years

     *Expected rate of return 15%
Principles of Building Wealth
building careers




       • Investment does not require
         timing but it requires time to
         grow




       • Reap the benefit of compounding
The Simplified Maze..
building careers




       • All debt is a bad debt
       • Have written budget and
         try to adhere
       • Set the SMART goals
       • Let your money work for
         you
Challenges
building careers




       • Longevity Risk
       • So when such plans are
         made the nest should be
         higher than the required for
         the expected life…
Inflation Risk the Biggest Chellange
building careers




     • Too much money chasing few
       goods
     • Increases the future cost of
       goods
     • Reduces the purchasing power
     • While planning for retirement
       inflation estimates plays the
       vital role
     • Average inflation can be
       assumed between 5% to 6%
       based on the past average
Case study - Inflation
building careers




     • Suppose Mr. Chauhan aged 45 spends
             Rs. 3,00,000 p.a.

        Expected increase in standard of living   3%
        Standard of living during retirement      80%
        Inflation                                 5%

     • Imagine the amount that he will
             require at the age of 60 years for one
             year
                           Its 9,51,650 approximately
FP and Investment Planning
building careers




       •           Through investment one can achieve life goals
       •           It is a path to retirement
       Must consider
       •           Asset allocation
       •           Risk
       •           Time
Asset Classes
building careers




                   •   Equity
                   •   Debt
                   •   Money Market
                   •   Gold
                   •   Real Estate
FP and Insurance Planning
building careers




       • Loss of earning can destroy the
         plans
       • Simultaneously it is not
         possible to cover all the risks
         because of the cost
       • Life insurance
       • Disability income insurance
       • Medical insurance
Human Life Value
building careers




                   Mr. Mohan is an assistant manager in a private firm
                   • Present age is 45 years and retires at age 60
                       Present salary                 Rs. 2,40,000 pa
                       Total life insurance premium   Rs.15,000 pa
                       Income tax and professional tax Rs.35,000
                       Self-maintenance expense       Rs.30,000

                   •     Medical expenses are being reimbursed by the
                         company.
                   •     Assume discount rate to be 8% p.a.
Calculation
building careers




                   Gross total income                        240000
                   Less:
                   Self maintenance expenses                 30000
                   Taxes payable                             35000
                   Life insurance premium                    15000
                   Surplus income generated for the family   160000

               By discounting the annuity of Rs.160000 for 15 years @8%
               His insurance need for today is 14,80,000
Types of Plans
building careers




       • Term Plan
       • Pure Endowment Plan
       • Non Traditional Plan
Tax Planning and FP
building careers




       • The biggest enemy of FP is taxes
       • Taxes eat up lots of wealth of the
         investor
       • Efficient tax planning can help an
         investor to generate better wealth
       • Taking higher risk and paying
         higher tax is not a wise strategy
       • Focus more on tax reduction
I want to Buy a Car
building careers




       • Let say, you are buying a car of Rs.5 lakh and Rs.1
         lakh you have paid as down payment. Rs.4 lakh is
         loan for 5 years.
                   Rate interest on loan                   12% pa
                   No of EMIs                                 60
                   EMI                                8900 approximately
                   Decline in value of car per year          20%
                   Loss of interest on down
                                                             8%
                   payment
                   KM run per year                         10,000
                   Mileage                              15 km per liter
                   Price of fuel (petrol)                     55
Cost of Ownership
building careers




          Fuel cost per km                            3.67

          Interest burden of loan per km              2.68

          Loss of value per km                         10
          Loss of interest on down
                                                       0.8
          payment per km
          Total cost of running car per km   17.15 for the first year
Force Theory of Money
building careers




       If I get Rs.10 lakh today, my all the financial problems
       will get over and I can start with planning.
What is Better
building careers




       • Shall I buy a house or take it on rent
       • Shall I buy a smaller house or bigger house
Retire at 60
building careers
       Wealth




                   Accumulation Years       Retirement Years
Retire at 50!
building careers
       Wealth




                   Accumulation Years            Retirement Years
Retire at 65
building careers
       Wealth




                   Accumulation Years         Retirement Years
Retire from WORK….
building careers




                              Not from LIFE!!!!
Websites to Visit
building careers




       For Financial Awareness
       • www.jagoinvestor.com
       • www.valueresearchonline.com
       • www.moneycontrol.com
       • www.moneylife.com
       For CFP
       • www.prashantvshah.wordpress.com
Sharings of Participants
building careers

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Financial awareness presentation ahmedabad meet

  • 1. Personal Financial Planning The Need of the Day building careers Prashant V. Shah CFP PROGRAM HEAD Anagram Knowledge Academy
  • 2. building careers Where you are on the driver’s sit of your life
  • 3. Expectations of the Participants building careers
  • 4. Financial Planning building careers A continuous process through which a planner helps his client to achieve his life goals These goals may be: • Retirement Planning • Children Education • Recreational Goals etc.
  • 5. building careers Transact -ion Invest ment Loan Surplus Money Deficit
  • 6. building careers Income Expense Savings Revenue from Investment Investment Long Term Short Term
  • 7. Retirement Planning? building careers It is the process of ensuring sufficient financial resources to the retired person so that he/she can enjoy the desired lifestyle during the retirement years
  • 8. Why Retirement Planning building careers • People are living longer • Change in demographic profile
  • 9. Questions People Face for RP building careers • When to start • How much to be saved • Estimating retirement income and expense
  • 10. Wealth Creation building careers Involves the building of assets by means of careful investment into asset based investments, usually over a long period of time so as to achieve an income stream that will ensure a continuation of a high quality lifestyle in the years beyond retirement
  • 11. Principles of Building Wealth building careers Start investing early 5.71 Mr. E Mr. L Crore* Investment Starting Age 25 40 Investment - Monthly SIP Rs.5,000/- Rs.10,000/- Saving Years till age 60 35 years 20 years Total Investment Made Rs.21 lacs Rs.24 lacs 1.33 Crore* Investment requires time to grow 25 years 40 years 60 years *Expected rate of return 15%
  • 12. Principles of Building Wealth building careers • Investment does not require timing but it requires time to grow • Reap the benefit of compounding
  • 13. The Simplified Maze.. building careers • All debt is a bad debt • Have written budget and try to adhere • Set the SMART goals • Let your money work for you
  • 14. Challenges building careers • Longevity Risk • So when such plans are made the nest should be higher than the required for the expected life…
  • 15. Inflation Risk the Biggest Chellange building careers • Too much money chasing few goods • Increases the future cost of goods • Reduces the purchasing power • While planning for retirement inflation estimates plays the vital role • Average inflation can be assumed between 5% to 6% based on the past average
  • 16. Case study - Inflation building careers • Suppose Mr. Chauhan aged 45 spends Rs. 3,00,000 p.a. Expected increase in standard of living 3% Standard of living during retirement 80% Inflation 5% • Imagine the amount that he will require at the age of 60 years for one year Its 9,51,650 approximately
  • 17. FP and Investment Planning building careers • Through investment one can achieve life goals • It is a path to retirement Must consider • Asset allocation • Risk • Time
  • 18. Asset Classes building careers • Equity • Debt • Money Market • Gold • Real Estate
  • 19. FP and Insurance Planning building careers • Loss of earning can destroy the plans • Simultaneously it is not possible to cover all the risks because of the cost • Life insurance • Disability income insurance • Medical insurance
  • 20. Human Life Value building careers Mr. Mohan is an assistant manager in a private firm • Present age is 45 years and retires at age 60 Present salary Rs. 2,40,000 pa Total life insurance premium Rs.15,000 pa Income tax and professional tax Rs.35,000 Self-maintenance expense Rs.30,000 • Medical expenses are being reimbursed by the company. • Assume discount rate to be 8% p.a.
  • 21. Calculation building careers Gross total income 240000 Less: Self maintenance expenses 30000 Taxes payable 35000 Life insurance premium 15000 Surplus income generated for the family 160000 By discounting the annuity of Rs.160000 for 15 years @8% His insurance need for today is 14,80,000
  • 22. Types of Plans building careers • Term Plan • Pure Endowment Plan • Non Traditional Plan
  • 23. Tax Planning and FP building careers • The biggest enemy of FP is taxes • Taxes eat up lots of wealth of the investor • Efficient tax planning can help an investor to generate better wealth • Taking higher risk and paying higher tax is not a wise strategy • Focus more on tax reduction
  • 24. I want to Buy a Car building careers • Let say, you are buying a car of Rs.5 lakh and Rs.1 lakh you have paid as down payment. Rs.4 lakh is loan for 5 years. Rate interest on loan 12% pa No of EMIs 60 EMI 8900 approximately Decline in value of car per year 20% Loss of interest on down 8% payment KM run per year 10,000 Mileage 15 km per liter Price of fuel (petrol) 55
  • 25. Cost of Ownership building careers Fuel cost per km 3.67 Interest burden of loan per km 2.68 Loss of value per km 10 Loss of interest on down 0.8 payment per km Total cost of running car per km 17.15 for the first year
  • 26. Force Theory of Money building careers If I get Rs.10 lakh today, my all the financial problems will get over and I can start with planning.
  • 27. What is Better building careers • Shall I buy a house or take it on rent • Shall I buy a smaller house or bigger house
  • 28. Retire at 60 building careers Wealth Accumulation Years Retirement Years
  • 29. Retire at 50! building careers Wealth Accumulation Years Retirement Years
  • 30. Retire at 65 building careers Wealth Accumulation Years Retirement Years
  • 31. Retire from WORK…. building careers Not from LIFE!!!!
  • 32. Websites to Visit building careers For Financial Awareness • www.jagoinvestor.com • www.valueresearchonline.com • www.moneycontrol.com • www.moneylife.com For CFP • www.prashantvshah.wordpress.com