Financial Planning

Module Number: V

Advanced Financial Planning and Financial

Planning Strategies

1
Financial Planning

Syllabus

• Establishing client planner relationship

• Analysing client objectives, needs & financial situation

• Financial planning strategies to help survive volatility

• Developing the financial plan

• Implementing the financial plan

• Monitoring and revising the financial plan,

• Making the financial plan suitable for current economic trend

• Simulation of financial planning.

2
Financial Planning

AIM:
To equip students with the detailed understanding of the concepts , methods and techniques of
financial planning for designing and implementing an individual client's financial plan.

3
Financial Planning

Course Objectives:

The Objectives of this module is:

• To Deliberate on the modes and methods of investment planning and understanding the
process of client assessment
• To Elaborate on various financial planning strategies and its implementation with respect to
client assessment and needs.
• To Enumerate the revision of financial plans
• To Create Simulation of Financial planning

4
Financial Planning

Course Outcomes :
At the end of the Chapter, Students are expected to:
• Be able to Describe the modes and methods of investment planning and understanding the
process of client assessment.
• Be able to Discuss the importance of Saving and investments and list various products under
savings and investments.
• Be able to Illustrate financial planning strategies and its implementation with respect to client
assessment and needs.
• Be able to Create a simulation of financial planning.

5
Financial Planning

Table of Content:
Sr. No Topics
1 Establishing client planner relationship

2 Analysing client objectives, needs & financial situation

3 Financial planning strategies to help survive volatility

4 Developing the financial plan

5 Implementing the financial plan

6 Monitoring and revising the financial plan,

7 Making the financial plan suitable for current economic trend
8 Simulation of financial planning

6
Financial Planning

Table of Content:

Sr. No Topics
9 Self Assessment Questions
10 Activity
11 Reading Assignments and Interactive brain storming
12 Document links
13 Video links
14 E-books/e-resources
15 References

7
Financial Planning

Financial Planning Process

Monitoring and Establishing
revising the client planner
financial plan, relationship

Analysing client
Implementing
objectives, needs
the financial
& financial
plan
situation

Developing
Financial planning
the
strategies to help
financial
survive volatility
plan 8
Financial Planning

a) Establishing client-planner relationship

• The first step in executing the services of financial planning is to start by building the client-planner
relationship.

• The client-planner relationship starts with communication and mutual agreement to share all the
important facts by both the parties.

• The financial planner tries to create the trust among the client, by disclosing the details with respect
to process and fees associated with it.

• Once the trust is established, the client agrees to share the required information.

• The information shall cover the family background, financial status and the future financial goals of
the client.
9
Financial Planning

• Collecting information from client is a systematic process.

• At times, the client might not be in a position to sync and present all the information.

• Thus, the financial planner has to probe the client thoroughly, and in a professional manner, that
helps the client to share all the relevant information.

• The information collected from the client has to be classified under the following heads:

• Family background- Family members, residential details, occupation and Job details, Current
earning members, Number of dependents and their age

• Financial Status- Current income, expenses, assets, liabilities, Emergency fund

10
Financial Planning

b) Analysing client objectives, needs & financial situation

Analysing the Client Objectives and Needs

• The financial planner has to sit with the client and discuss in detail the financial objectives and goals
of the client.
• I doing so, the financial planner need to help the client, objectively and rationally list the objectives
in the sequential manner.
• With respect to need analysis, the one need to first arrive at financial goals using objectives.
• Once the goals are mutually agreed upon, they are classified in time zone.
• Time one ranges from short term, medium term to long terms.
• The classification of goals in timelines help prioritize goals and needs

11
Financial Planning

Analysing the Client’s Financial Situation

• For analysing the financial situation of the client, various financial statements are prepared based on
the financial data collected from the Client.
• The financial statements that are used to decided the financial situation of the client includes:
i. Income statement – Monthly and Annual
ii. Expense Statement – Monthly and Annual
iii. Asset and Liability Statement
iv. Net worth calculation.
v. Debt And Cash flow statement

12
Financial Planning

c) Financial planning strategies to help survive volatility

Investing regularly over a period time, systamatically

Repay non-tax-deductible debt first.

Don’t borrowing to invest

Make provisions in your Salary today for sacrificing to superannuation

Start the Income planning for retirement at a young age.

13
Financial Planning

What is 50-30-20 Rule in Financial Planning?

50% - Needs

20% -
Savings/debt 30% - Wants
management

14
Financial Planning

50-30-20 Rule:
• What is 50%?
50% of the net income should cater to the wants of the
individual/household.
50% - Needs
Needs are the basic requirements of the life. The absence
of need will definitely create inconvenience in one’s life .
• It includes expenses on:
20% - Grocery & Housing
Savings/debt 30% - Wants
management Utilities
Insurance
Basic Education of the child
15
Financial Planning

50-30-20 Rule:

• What is 30%?
30% of the net income should cater to the wants of the
50% - Needs individual/household wants which includes all those
spending which brings the experience of luxury in your
life. The absence of want will not create inconvenience in
one’s life for a short time period.
20% -
Savings/debt 30% - Wants • It includes expenses on:
management Entertainment expenses
Shopping & Dinning out
Spending on Habits etc.
16
Financial Planning

50-30-20 Rule:

• What is 20%?
20% of the net income should be diverted to saving and
50% - Needs
debt management. Savings is not a choice in one’s life,
rather it is a compulsion
• It includes expenses on:

20% - Credit cards Management

Savings/debt 30% - Wants Student loans
management
Retirement saving fund creation
Emergency funds

17
Financial Planning

Financial planning strategies to help survive volatility

Debt
Management
Strategies

Debt Debt
Avalanch Snowball

18
Financial Planning

d) Developing the financial plan

• Once the financial goals are arrive at mutually by the financial planner and the client and the
current financial situation is assessed thoroughly, the next step is the development of a specific
financial plan for the respective client:
• The variables that need to be covered in the financial plan includes (Both the Present and Future
Values):
• Tax and Investment Planning – Emergency Fund, Retirement corpus plans
• Debt management strategies – Converting deficit value to surplus value
• Financial Plan for Children Education
• Security coverage – Insurance and Medical plans
• Cash Flow management strategies
• Wealth creation and management strategies 19
Financial Planning

e) Implementing the financial plan

• Once the plan is created and approved by the client, the execution stage is active.
• Each and every strategy needs to be implemented and brought into action.
• The changes suggested need to be implement. The following steps need to be taken for
implementing the financial plan.
• Creation of Emergency fund
• Surrender/closure of some of the current investments and as a part of debt management strategy.
• New investments on the specified dates and in the stated amounts , one need to segregate the one
time investments and the Systematic investment plans.
• Swap the past investments with new ones , if suggested in the financial plan
• Rebuilding the Investment Portfolio, if suggested.
20
Financial Planning

f) Monitoring and revising the financial plan

• The next step , after successful implementation of financial plan, is to keep a track of it.
• Financial plan need to be monitored and revised on a continuous basis.
• For the initial few months one needs to monitor on a fortnight and a monthly basis as many changes
are implemented as per the new plan.
• Monitoring helps in tracking the performance and make timely corrections and adjustments.
• The financial planner, while in the process of monitoring the financial plan, keeps a track of
economic variables at large, market performance and projections and reviews it with the client’s
investment plan.

21
Financial Planning

Making the financial plan suitable for current economic trend

• As a part of review process, one needs to keep revising the financial plan according to the current
economic trends.
• Its is a part of financial planner expertise and service to keep trace of the economic trends , both
globally and nationally to make the required changes.
• The financial plan needs to have the flexibility to meet the needs of the client under all economic
conditions.
• This may required the suitable modification in the investment portfolio and the expense management
strategies.
• For example: The Covid 19 Pandemic has created a havoc in the life of individuals both financially and
emotionally. Many people suffered the financial loss. In any such situation, one needs to adjust the
financial plan to adapt to the economic scenario. 22
Financial Planning

Simulation of financial planning.

WHAT TO DO WHEN YOUR SAVINGS DON’T SEEM TO BE ENOUGH

Meet Ram.

• Ram is 30, has recently got married to Sapna who is 27, and he and his wife are planning to have their
first child in 3 years.

• He lives in a comfortable although small apartment of his own, in a building where the society bills are
very high due to major maintenance work that is required.

Ram’s Financials

• His current annual income is Rs. 10.80 lakhs, that is Rs. 90,000 per month after taxes. His family
household monthly expenses are roughly Rs. 50,000 (including building maintenance expenses of Rs.
23
15,000 per month).
Financial Planning

Simulation of financial planning.

• He invests Rs. 35,000 per month, and saves Rs. 5,000 per month. He expects his salary to grow at 10%
per year. Sapna is a home maker and hence is not earning.

• He had a family medical insurance that covers Sapna and himself, for which he pays Rs. 12,000 per
year.

• His company does not provide medical insurance. He has no other insurance.

• His accumulated EPF is Rs. 40,000 and he invests Rs. 780 per month into his EPF, which his employer
matches.

24
Financial Planning

Simulation of financial planning.

Ram’s Assets and Liabilities

• Ram has no liabilities. He has a PPF account where he invests Rs. 70,000 per year and wants to
continue doing so.
• The current value in the account is Rs. 11 lakhs. Ram has equity mutual funds worth
approximately Rs. 4.50 lakhs, and direct equity of Rs. 1.50 lakhs.
• He has liquid funds worth Rs. 75,000.
• Thus, totally by the age of 30, Ram has accumulated Rs. 18.50 lakhs across debt, equity and
liquid funds. He has no gold exposure.
• His residential home is worth Rs. 2 crores so his total net worth is Rs. 2.18 crore, distributed as
follows:
25
Financial Planning

Simulation of financial planning.

26
Financial Planning

Simulation of financial planning.

Ram’s Life Goals:

• The first thing on Ram’s mind is shifting to a bigger or even a same size apartment, in a better
building. The value of his house currently is around Rs. 2.00 crore, and he knows that if he wants to
move to a better location he will need to sell his current home and also spend an additional Rs. 50
lakhs to move into a Rs. 2.50 crore apartment. This is something that Ram does not want to
compromise on. He plans on taking a Rs. 50 lakh home loan but doesn’t know if this is the best
option for him, as he also wants to save for his retirement. He would like to do this immediately i.e.,
in 2012.

27
Financial Planning

Simulation of financial planning.

• Ram wants to buy a new small car, worth says Rs. 4 lakhs. He doesn’t mind a second-hand car. He
can sell his existing vehicle and will get Rs. 1 lakh sale value. He would like to do this in 2012 as
well.

• Ram wants to provide for a medical contingency corpus of Rs. 5 lakhs within 4 years i.e., by 2015.

• Since his wife and he are planning a child in 3 years’ time, he wants to spend Rs. 20 lakhs in
today’s terms on the child’s higher education, to be achieved when the child turns 18 that is in
2032.

• He would like to take his family on annual vacations worth Rs. 2 - 2.50 lakhs per year, but this is a
very low priority goal and he doesn’t mind if he doesn’t achieve this.
28
Financial Planning

Simulation of financial planning.

• Ram would like to retire at the age of 60 in 2041. His post retirement life expenses will be Rs. 35,000
per month. Ram’s primary concern is shifting out of his current house into a newer building, and
building a medical contingency fund.
• Ram’s brother Shyam has been trying to convince Ram that taking such a large home loan right now is
not a good idea, as with a Rs. 50 lakh home loan, the EMI will be Rs. 50,000 per month for 20 years.
This means that for the next 2-3 years Ram will have to stop all other investments and only pay his
EMI and his household expenses. Instead, he recommends Ram to invest in a much smaller property as
an investment, with a Rs. 20 lakh home loan, and give it out on rent. When the property appreciates in
value, he can sell it, repay his home loan, and will have made a tidy profit on the sale.

29
Financial Planning

Simulation of financial planning.

Case Analysis:
Info-graphics of family
background of Ram and
his Family:

30
Financial Planning

Simulation of financial planning.

Ram’s Financials:

Income Statement:
Monthly Yearly
➔ Salary – Rs.90,000 ➔ Salary – Rs.10.80Lakhs
➔ Savings – Rs.5000

Expenses:
Monthly Yearly
➔ Monthly Expenses – Rs.50,000 ➔ Medical Insurance – Rs.12,000
➔ Building Maintenance –
Rs.15,000
➔ Investments - Rs. 35,000
➔ EPF Investment – Rs.780

31
Financial Planning

Simulation of financial planning.

Assets and Liabilities:

Assets:
Yearly Assets
➔ PPF Account – Rs.70,000
➔ Debts – 18.50 Lakhs (Equity + Liquid)
➔ Residential Home – Rs.2 Crores
Total Net Worth – Rs.2.18 Crores

Liabilities: Ram has no Liabilities.

32
Financial Planning

Simulation of financial planning.

Future Goals:
Sl. No Goals Current Future Time Priority
Value Evaluation Frame
1. Shifting to Rs.2 Crores In 2012 High
New (Loan – 50L)
Apartment
2. To buy a Car Rs.4 Lakhs In 2012 Medium
(2nd Hand is (Existing
also fine) Vehicle – Rs.1
Lakh
Sale Value)
3. Medical PV4 = Rs. Rs 5 Lakhs In 2015 High
Contingency 3,41,506.7276
Corpus
4. Birth to Rs.20 Lakhs FV = In 2032 High
Child in 3 Rs.1,11,19,834.62
Years
5. Family Rs.2-2.50 - Low
Vacation Lakhs/ Year
6. Retirement Rs.35,000/month By 2041 Medium
33
Financial Planning

Simulation of financial planning.

Are Ram’s priorities in order? Should he first plan for his retirement and then worry about
moving to a better building? Or should Ram take the home loan?

Answer:

 As his sibling Shyam proposed taking the credit for home is hazard, he should consider other
speculation plans like RD/RBI Bonds or Post office month to month Income plan will be most
ideal alternatives where he can set aside some cash for future and he can utilize it for building
whenever they are developed.

34
Financial Planning

Simulation of financial planning.

Ram has very broad knowledge of insurance and wants to take a ULIP with his wife as the
nominee. He wants to know if this is a good idea, and how much premium should he invest per
year.

Answer:

 He should begin with Rs.10,000/month from his investment funds to take the ULIP with his better
half as a chosen one.
 Since his Income is Rs.90,000/month and barring costs and different costs he ought to be figure out
how to left with 10,000-15,000/month.

35
Financial Planning

Simulation of financial planning.

How should Ram structure his finances to achieve his life goals? Let’s help Ram to achieve his
life goals!

Answer:

 Since he needed to purchase a greater home and it is of higher need, he should attempt to both set
aside the cash from his profit just as Invest his cash in hazard free speculations like RBI Bonds (7
years) and Bank FD’s (5 Years) and Post Office month to month pay plot (5 Years) where the
development continues on the bonds/POMIS are likewise absolved for charge.
 In this route by procuring the higher loan fees with generally safe speculation he can progressively
accomplish his life objectives.

36
Financial Planning

Summary
• The first step in executing the services of financial planning is to start by building the client-planner
relationship.

• The client-planner relationship starts with communication and mutual agreement to share all the
important facts by both the parties.

• Once the financial goals are arrive at mutually by the financial planner and the client and the current
financial situation is assessed thoroughly, the next step is the development of a specific financial plan
for the respective client.

• The two debt management strategies include Debt snowball strategy and the Debt Avalanch strategy

• The financial planning of an individual shall follow the 50-30-20 rule, 50 % for needs, 30 % for wants
37
and 20 % for savings.
Financial Planning

Self Assessment Question

1. The first step of financial planning process is

A. Gathering client data, including goals

B. Analyzing and evaluating current situation and needs

C. Establishing and defining client relationship

D. Implementing the recommendations

Answer: Option A

38
Financial Planning

Self Assessment Question

2. The last step of financial planning process is

A. Gathering client data, including goals

B. Monitoring and reviewing the Financial Plan

C. Analyzing and evaluating current situation and needs

D. Developing and presenting recommendations

Answer: Option B

39
Financial Planning

Self Assessment Question

3. Which among the following is not the most "common" life goals :

A. Children’s future including education and marriage

B. Corpus for starting own business

C. Buying a house

D. Comfortable Retirement

Answer: Option C

40
Financial Planning

Self Assessment Question

4. While offering solutions to clients, the following aspects of personal finance need not be
analyzed as a whole rather than seeing them in isolation

A. Income

B. Expenses

C. Risk Tolerance

D. Estate

Answer: Option C

41
Financial Planning

Self Assessment Question

5. Net Worth is

A. Assets + Liabilities

B. Assets + Liabilities - Existing Insurance

C. Assets - Liabilities + Existing Insurance

D. Assets - Liabilities

Answer: Option D

42
Financial Planning

Self Assessment Question

6. Cash and cash equivalents are example of

A. Cash Flows

B. Net worth

C. Liabilities

D. Assets

Answer: Option A

43
Financial Planning

Self Assessment Question

7. Short-term investments — include investment options bought and held for sale or till
maturity for a period of

A. Up to 3 months

B. From 3 months to a year

C. Up to 3 years

D. None of the above

Answer: Option B

44
Financial Planning

Self Assessment Question

8. Land normally is considered

A. Liquid assets

B. Short-term investments

C. Long-term investments

D. Medium term investments

Answer: Option C

45
Financial Planning

Self Assessment Question

9. This factor does not affect the risk profile of a customer

A. Investor’s age

B. Family situation

C. Food habits

D. Current financial picture

Answer: Option C

46
Financial Planning

Self Assessment Question

10. Normally, how many months’ expenses should be put aside so that they can be liquidated at a
short notice

A. 0-3 months

B. 4-6 months

C. 7-9 months

D. 6-12 months

Answer: Option B

47
Financial Planning

Activity

• Review the case.

• Understanding how insurance works:

• https://networkfp.com/financial-plan-with-solutions-
Offline/ Online of-a-real-life-case-study/
Activity
(30 min)

48
Financial Planning

Activity

• Prepare a one page infographic presentation on the

Process of Financial Planning and also design the
investment products for the age group of 25-35, 35-
Offline/ Online 45,45-55
Activity
(30 min)

49
Financial Planning

Document Links

Topic URL Notes

How to manage the

Debt management Strategies
Debt Snowball and Debt Avalanch
strategies
https://personalfinance.duke.edu/debt-management-strategies
debt
Difference between
Debt Snowball and
https://www.cnbc.com/select/debt-snowball-vs-debt-avalanche/ Debt Avalanche
strategies

50
Financial Planning

Video Links

Topic URL Notes

WEBINAR: FINANCIAL PLANNING FOR YOUNG https://www.youtube.com/watch?v=NI6

PROFESSIONALS 8XNI5PK4 -

https://www.youtube.com/
Personal Financial Planning for Young Professionals
watch?v=aEfMe2y8DVk -

https://www.youtube.com/watch?v=pftx
How To Pay Off Debt (Debt Snowball vs Debt Avalanche)
9Jx6N1Q -

51
Financial Planning

E- Book Link

E-book name Chapter Page No. Notes URL

https://resources.saylor.org/wwwresources/arc
Personal Finance Ch1-18 All All hived/site/textbooks/Personal%20Finance.pdf

52
Financial Planning

Book References:

• Introduction to Financial Planning (4th Edition 2017) – Indian Institute of Banking & Finance
• Pandit, Amar The Only Financial Planning Book that You Will Ever Need, Network 18
Publications Ltd (CNBC TV 18), B.Com.(Hons) CBCS Department of Commerce, University of
Delhi 44
• Sinha. Madhu, Financial Planning: A Ready Reckoner July 2017 Mc Graw Hill
• Halan, Monika, Let’s Talk Money: You've Worked Hard for It, Now Make It Work for You, July
2018,Harper Business
• Tripathi,Vanita, Fundamentals of Investment, Taxman
• Planning for Retirement Needs, David Littell and Kenn Beam Tacchino. American College, 2nd
edition, 2010.
53