Financial Plan

Simple Financial Plan could change Portfolio from 4.44 L to 82 L in 3 years

About 3 years back, a well-established architect friend of mine has been avoiding getting his financial plan done at least for the last 2 years. During this period, he saw me working on plans of many of clients. Being a friend I did not want to mix friendship and profession, hence I never insisted him on getting the plan done; however, I never missed an opportunity to dwell upon the importance of planning to him and his family. Finally, the D day has come and golden words came from his mouth. During a cup of tea my friend announced ‘I want to do my financial Planning.’

He being a friend of mine, I had a fair idea of his finances. Still, we together decided to go ahead with the process as led down by my firm. So, we entered into an agreement and signed the Letter of Engagement. I handed him the Financial Planning Questionnaire. He and his wife, who by qualification was a Chartered Accountant, though not practicing. Both of them completed the questionnaire religiously and handed back to me.

When we started working on it, following were major observations-
  • Erratic Cash Flow. No discipline here.
  • Monthly income was strong, but not put to use and properly accounted
  • Most assets were in Real Estate and Chit Funds.
  • Numerous Insurance Policies, most of them were Endowment and Moneyback
  • No Loans
  • Approximately 37 Lac rupees of his consultancy fees outstanding in the market
  • Stocks and Mutual Fund portfolio of Rs 4.44 Lakhs
We identified these issues –
  • My friend was in dire need of developing the money discipline
  • Skewed Asset Allocation
  • No planning for future goals, leave aside Retirement corpus
  • Protected with an insufficient amount
  • Liquidity situation was a concern
His strong points were –
  • Had a strong incoming Cash Flow and Surplus
  • Conservative approach towards lifestyle expenses
  • Willingness to change the habits

One important thing which we have noticed is that he mostly used to work for builders. There were instances when builders offered him a Flat/s in their schemes against his fees. The cost of flats was higher than the fees he was supposed to receive. Now, this friend of mine had outstanding to be paid to the builders.
Moreover, he had a large amount of fees to be recovered from his clients and this trend was sharply growing.
For us this was a clear case of money indiscipline. We have chalked out of definite ‘plan of action’ to change his basic habits. His wife being an accountant, things went quite smoothly.

Broadly this is what we wanted to change-
  •  Stop his shopping of real estate
  •  Cultivate a habit of recovering his professional fees as per the terms and not adjusting this fee against any other means
  •  Clear outstanding dues to be paid for the flats he has already booked. This was adjusted against the outstanding fees in the market.
  •  Start investing the surplus income in appropriate Mutual Funds for his life goals
  •  Chalked out corpus requirement for his retirement funds and provide for it
  •  Work on his insurance needs and streamline his existing insurance policies

It’s been 3 years since we have worked on his Financial Plan. When we started his liquid investment portfolio was worth Rs 4.44 L. We could create an Investment portfolio consisting of 70% Mutual Fund (70% allocation to all type of Mutual Funds put together) + Stocks (10% allocation) + other (20% allocation)- Real Estate excluded. The portfolio sized to Rs 82 Lakhs without accounting for the growth in the portfolio. We could generate total 82 lakhs now channelized to the right Assets and each investment properly assigned to a goal. He has proper insurance coverage. Most importantly he has peace of mind. He is now nicely placed in terms of his liquidity. He has started earning better returns on his investments. We kept of reviewing his financial plan and his investment portfolio for life changes during this period. This has paid off well.
Ironically, now my architect friend no more wants to invest in real estate.

Important – Investment Advisor in Nashik, Investment Advisor in Thane, Investment Advisor in Jalgaon, Investment Advisor in Pune
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