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Portfolio : A collection of investments owned by the same individual or organization.

Will : legal declaration of how a person wish his/her possession to be disposed after their death

Future Value (FV) is the value of an asset or cash at specified point of time in future. This can be derived from the Present Value of the cash or an asset.

A change made in the basic law.

It is a set of principles which governs a system or a set of people.

A set of assets which an investor holds. This may contain equities, mutual funds, insurance and other cash equivalents.

Wealth is accumulation of resources or as on date value of assets a person own. Commonly Net worth is the measure of Wealth of an individual.

It is the raise in the value of Consumer Price Index. That is the rate of increase of the price of a goods or services.

Independence Day

India obtained its independence from British Rule on 15th August 1947. India became independent and wants to develop and prosper with its own decisions.

Constitution

Though we are independent, we were not having our own constitution . Without constitution it is difficult to take the right decisions for growth. So we needed our own constitution which will be the principles and guidelines, based on which we will be able to take the right decisions at the right time. Constitution also deals with the procedures and methodology of taking decisions.

Republic Day

The Constitution of India came into effect on 26th Jan 1950 which we call it as Republic Day. Since 1950 we were able to continuously grow with the guidance from our Constitution. Without an effective constitution, this exponential growth could have become impossible.

Amendments

So far we have made 96 amendments in our constitution in the last 62 years. Amendments make the constitution more dynamic and implementable in the changing times.

Financially Independent

You will be financially dependent on your parents till you complete education. Once you get a job you will become financially independent. You can take your own financial and investment decisions. You may want to financially grow and achieve Finacial goals like buying a car, buying a property, children education , and marriage, and having a comfortable retirement .

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Financial Constitution

Do you have your own financial constitution? That is you need to have a set of financial principles guiding you to take the right financial and investment decisions. Without these guiding principles it is difficult for one to financially grow and achieve financial goals. This financial constitution or financial plan details the step by step procedures and methodologies of taking sound financial and investment decisions.

Illustrating a case:

Rahul would like to retire in 25 years. He would like to have (when retiring) investments which can generate lifelong, the equivalent of Rs.50000 per month and additional Rs. 2 lacs per annum at today’s costs.

A Mediocre Approach:

Rahul may choose invest now and then. He may contribute Rs.3000 in one month, Rs.15000 in another month. He may skip investments at times. So his financial picture will not be very clear. He will not know how much he will be accumulating when retiring. He will have insecurity throughout.

Financial Planning Approach:

Financial planning approach has got some principles and guidelines. These principles and guidelines are like a light house for a ship. They give you the right direction at any point in time.

Investment Principles and Guidelines in Financial Planning Approach:

1) A good investment need to generate a decent inflation adjusted return.
2) Not investing in risky avenues like stock market is also riskier.
3) When doing trading, you are not investing.
4) Asset allocation is a proven strategy to reduce the overall risk of the portfolio. Periodically rebalancing the assets will enhance the potential of wealth creation.

In the financial planning approach, the situation will be detailed with more facts. As you have well established procedures and methodologies in Financial Planning, you will be able to do a sound plan and course of action to be taken to achieve the financial goals.

  • Present Age 30
  • Retirement age 55
  • Life expectancy 85
  • Expected Annual Income
  • (Post Retirement in today’s value) 800000
  • Inflation 6%
  • Pre-retirement return 12%
  • Post-retirement return 8%
  • FV Expected Annual Income 3433497
  • Retirement Corpus 79582501
  • Required Annual Investment 596866
  • Required Monthly Investment 49738

If Rahul is able to invest Rs.49738 per month, he will be able to accumulate the retirement corpus easily.

Alternatively Rahul can start with Rs.22000.per month, and increase the contribution every year by 10%. Even in this method he will be able to accumulate enough towards his retirement.

Amendments Vs Review:

Financial planning reviews are what amendments to a constitution. When there is a change or deviation from our original plan, we need to do a review to control the change. The reviews of financial plan accommodate the changes and deviations and make the whole plan achievable.

When celebrating the Republic Day of our country, why don’t you create your own financial constitution /financial plan for a better prosperity?
Long live Republic.

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