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Five steps to logical financial decisions

Mr. Karthik Rajan is a 37 year old married man and has one child, aged 7. Four years back, Karthik and his wife were looking for an apartment in the price range of about Rs. 50 lacs but ended up buying one worth Rs. 80 lacs. The reasons for buying a house beyond his means were peer and family pressures. He moved into his new apartment and immediately took a personal loan to renovate his house. Plush interiors coupled with state of the art furnishings cost him almost Rs. 10 lacs. But that was not all, Karthik believed that having a car especially a high end one is a necessity and so took a car loan for the same.

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Media

Rich and Wealthy: Do they actually mean same?

We often use the term rich and wealthy interchangeably. But do they actually mean the same. If one gets hundred rupees now as gift we say he is richer by hundred rupees, however we do not use the term that he is wealthier by hundred rupees. The term Wealthy is defined as abundance of material wealth. However when we talk about this under the financial planning aegis, we could imply as someone who is financially free. Now when we say that someone is financially free the question is when can we really call ourselves as financially free? Is there a benchmark figure or number which can term us, as one who has achieved financial freedom. The answer lies in us going through the following points which can help us decide if we indeed have reached financial independence.

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What to review in a financial plan

Mukund Seshadri Certified Financial Planner & Partner, MS Ventures Financial Planners You may have often come across the statement that “a financial plan needs to be reviewed from time to time”. However, the trouble is: most of us really don’t know what exactly should be considered while reviewing a financial plan. Many people assume that it is about checking the value of the investment. Sure, you need to check your returns, but that is not the only thing you should do. There are other factors to consider in a review of a financial plan.

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Media

Understanding risk taking ability

We often hear that people should invest in assets depending upon their risk taking ability. But the million dollar question is what is ones risk taking ability? Can a questionnaire alone decide how much risk one can take ? If so will it remain the same till one meets his goals?

The answer is indeed very tricky. This is so because our risk taking ability is decided by many external factors. For example when the markets perform well even risk averse investors start investing in the markets and when markets don’t do well our portfolio tends to get skewed towards debt. Our risk taking ability also depends on factors like peer pressure, our past experience, our family background etc.

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Delink needs from desires to rein in expenses

Nitin Gupta (name changed), age 33, works for an MNC and his wife Radha Gupta, age 29, works for a law firm. They got married four years ago. Under increasing peer pressure, they decided to buy their dream house, as friends and family would rate their degree of success in life on the basis of their flat in Mumbai. However, this turned out to be a costly affair and they ended shooting up their budget after buying a lavish apartment with 85% loan. The renovation of the house cost another Rs 20 lakh, for which their personal savings were used and they had to take a personal loan too.

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Media

Bad Input Equals Bad Output

To make a financial plan the raw material used is the data and inputs given by the client. The problem is that most people are not clear on their milestones and what impact will the current investments have on their future goals. The problem is, we do not spend enough time thinking about what really we want from our investments? The lack of focus leads to problems, as the choice of investments depends upon what currently is doing well in the market irrespective of whether it suits me or not. So in case our investment does not give the desired return we shift our focus into some other investment which again might not meet our goals. So it is of utmost importance that even before we invest in any product we need to think about the holistic milestones which we need to cover. So how does one ensure that data given is correct?

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Media

Financial plans not implemented could be a futile exercise

Mr. Kartik Mahadevan is a salaried individual holding a senior position in a telecom company. He is always hard pressed for time and has been postponing his own financial planning to a future date. On and off he has been investing for getting some tax benefits and to honor certain relationship commitments of buying certain products from friends and relatives. He then one day decided to take services of a financial planner and got his complete plan done. However after the plan presentation his planner gave him a list of things which has to be implemented to achieve hi set goals. However as soon as the plan was completed there was no implementation on his par

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Don’t just think about tax gains while planning your investments

Ajay Nair (name changed) was asked by his company to submit his investment declaration by the weekend. He immediately called his distributor and got the investments done, without realising the other aspects apart from saving tax. Few years have passed and Ajay get’s a rude shock to realise that his investment value is far below his expectations. This is common to many investors. Investing in instruments just for saving tax is a short-term strategy; which could be detrimental to financial planning on the whole. Let’s look at certain tax exemptions which could also help us in our financial planning process.

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