Financial Planning Advice

Formidable as the words “Financial Planning” are and no matter how many times it is repeated, it must be remembered that financial planning is for all; not governments, banks, financial institutions, the accounts department of your office, but also for you personally.

After all finance is nothing but money, expressed differently. Therefore to take away the rather high sounding word “finance” substitute money instead, and you would immediately starting the way you should.

Everything in the world needs money, or finance. Be it investment banking, banking, capital markets, even social service organisations, governments, your next door grocery, insurance companies etc. You name it, and they have to have financial planning or ‘money’ planning.

The only difference between your finance planning and those of others is that they are regulated by various laws and regulations since they deal with other people’s money!

Banks have to maintain a certain ratio of cash, they can’t lend without going through a fiduciary process known as due diligence, their exposure to the capital market is restricted, their lending is subject to prudential norms; investment banking too has its own laws and regulations; investments and exposure of insurance companies too is regulated. That is why these institutions have to be very cautious in their capital allocation management asset valuation, and they risk analysis, and management. The larger the capital available for allocation, the greater the risk they have to undertake. They have thus to fine tune their performance in a manner as would give greater returns, while managing the exposure to risks.

You and I take loans from these institutions. Well, there are thousands of people like us who take loans and mortgages. Assuming that all of us paid up, there would be no problem. But if let’s say 10 of us default, then the loss of that revenue adds to the non performing assets of the institution. This is true of corporate loans as well. Banks are under a regulation to keep their NPAs, as the non performing assets are called, under certain limits. When they go overboard, then down the tube goes the bank. Thus, to protect the investors, the small depositors like you and me, there are caveats and rules and regulations.

As has been said earlier, we too need to plan our finances in advance. Of course the amounts we have at hand are far lower, yet, there is need for planning. We need to plan for our house maintenance, our family budget, consisting of groceries, provisions, white goods, children’s education, an occasional vacation, utility costs fuel costs, etc. These are nothing but the same items that financial institutions use except that they are clubbed together and put under different names. From these figures, they extract their exposure and risks, and the balance to be provided.

Further, since they are players in a larger market, they have to be constantly on their toes to foresee what is there in the present, and what it is likely to be in the future. That is why they have analysists and economists to provide them hard data and various scenarios for the management to consider and allow them to take decisions.

This is called financial planning: finding what is happening, what is likely to happen, and if such and such event occurs what would be impact on the finances. This is the role of financial planning services, normally a unit in itself in the various institutions.

How good financial planning services is for an institution is determined by its rating in the market. A good institution would get good ratings if their financial planning services are excellent. Others go lower down. One way of finding whether this is true or or not, is when you see the stocks of one institution going down, just because a SINGLE INDIVIDUAL left that institution. Why this effect? It is because that person who left is considered a wizard in financial planning services, and his departure may have a long term impact on the future of that institution.

To manage your own finances, small as they may be, it would certainly be advisable to use a financial planning services provider. They operate in a number of ways. You could join a service which invests in stocks and shares, or provides finances for industry or commerce, or is using a mix of stocks and foreign exchange markets, or is investing part ofits ratio in local markets, currency and finance, and in stock markets abroad. What you have to look at is its last three years balance sheets to find out whether it stayed above the board, especially in rough and tough conditions. When it is good times, there is no need for such verification.

That brings in another point. Always assume the worst, and accordingly use your finances as is there is going to be a disaster tomorrow. In good times, nobody bothers. Rightly so.

Financial planning services is not such a tough subject for you to learn. You can read a number of books that are available in the market on financial planning, which delve deep into the subject, other books on financial management, other management techniques, subscribe to business management articles, and of course you can always talk to your banker or financial advisor. You can tap the knowledge resource of your own company, which is also doing exactly what the banks and other institutions mentioned above are doing.

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Planning for retirement can seem like a daunting task. With the credit crunch causing us all to think about our finances, there has never been a more important time to ensure you have a financial plan for future, and a pension is a crucial aspect of this. Finding independent advice is essential when making these important financial decisions, as you need someone you can trust to advise you on the best and most suitable products for you. For more on pensions advice, visit www.unbiased.co.uk …

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