After a long, tiring working day and driving through the chaotic traffic, I was headed for the much desired shower. I was stopped in my tracks by a buzzing phone. “These Techno-tyrants intrude the privacy at every step” I thought to myself.
“Have you reached home dude?” It was my friend.
“Yes, tell me, what’s the matter”.
“I seek your expertise and want you to help, one of my friends in financial planning. If you are at your place, we will be there in 20 minutes”.
The door bell buzzed and I opened the door. My friend was accompanied by a young couple. I welcomed them.
My friend introduced newly married couple as Mayank and Saachi. “They wanted me to help them in financial matters” my friend was laying the foundation brick by brick. “So we seek help of your esteem self”.
Not allowing my friend’s sycophancy affect me, with a precision of skilled surgeon I began. “Mayank on a piece of paper write down your monthly income, monthly expenses, liabilities, assets, your investment so far, your goals and time frame to achieve those goals”.
While Mayank and Saachi were busy jotting down the details, I arranged for the dinner.
As I read through, the information, I could categorize this young couple as ‘Moderate Earners but comparatively High Spenders’. My friend was quick to spot the dissatisfaction on my face and said “that is why I need you to help them”.
“I can categorize you as ‘Moderate Earners but comparatively High Spenders’, I began. But all is not lost, since you have come here, you seem to be serious in financial planning. What you need is more disciplined approach in saving and you would be right on your track to prosperity. I will base my plan on Expense Sheet & Budgeting, Contingency, Insurance, Equity- Debt Allocation and finally Retirement Planning”.
“First things first, you need to cut down on some of the excess expenses. Best way to figure out those additional expenses, is to maintain monthly expense sheet and analyze the monthly expense sheets and then cut down the unwarranted expenses. Maintaining daily expense sheet and budgeting is one of the best tools of financial planning.”
“The next step is to build Contingency Fund. What provisions can you make to build this Contingency Fund?” The young couple looked perplexed.
“What is this Contingency Fund?”
“Well, you have to cover yourself for all the unexpected events, thus build a corpus sufficient enough to take care of around 6 months expenses, including liabilities, and this corpus will act as Contingency Fund”.
“We do not have a special provision for building this corpus, but we can use the money that we received during our marriage to build Contingency Fund. Mayank and Saachi were in unison.
“Attaboy. This couple seems determined to tread disciplined financial management path and that impressed me. “No free lunches boy, you need to work for them. I am impressed with this decision. Now park this corpus as a very short term FD in bank and do not utilize this money, happen whatever may”
“Very well then, now that you have covered yourself for contingencies, cover your ass”. Buy life insurance for both of you. Since Mayank you are the bread winner, your life insurance cover should be 10-12 times your annual expenses.”
“Ok, one of my friends is insurance agent and I will buy endowment or money back policy”.
Another one bites the dust, I thought. “Endowment policy earns more for the insurance agent than it earns for you”. The look on the couple’s face reiterated what I always believed truth is almost always scandalous.
“Do not mix insurance and investment. Insurance should be treated as insurance, so my advice is buy pure term policy for yourself and Saachi for longest possible term.”
By this time our intestines were bursting, so we decided to satiate our hunger. It was already too late and after sumptuous dinner, we instantly agreed that discussion on humdrum topic of Financial Planning was not a good idea and we decided to recommence our session after days.
Mayak then dutifully summarized the key take-home messages and actions for him.
“Sir, May I say something”
“Go on Mayank, no need for the permission”
“I wish to tweak that clichéd saying a little. If there are no free lunches, then opt for dinner, just like we did today?”
We all had a good laugh on this witty comment and while the team was disembarking, we decided to have another session on financial planning in near future.
(Disclaimer: I am not certified financial planner. I learnt through own mistakes, experiences of my friends and lots and lots of reading.)
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