Financial Planning

Financial Planning (FP) is both an Art as well as a Science. Several things are discussed and executed, in this area, based on emotions, feelings and beliefs. While others are decided based on hard facts of taxation, law, and financial expediency. Financial Planners
(FPs) practice very specific and individual styles of financial planning, which is as unique as the planners themselves. A Stock-Broker approaches the matter as ‘money management’ and invests the funds (with obvious risks) for higher gains. An Insurance-Agent is generally interested in setting up insurance plans to avoid future economic losses, and to avoid financial risks. But comprehensive financial planning (FP) goes much further beyond these narrow scopes of ‘money management’ and ‘insurance’. In
my opinion, the financial planning should be done with the following two aspects in mind
Risk Management, and 2. Investments.
Risk Management, obviously financial, consists of placing mostly insurance policies in force, where an individual or a corporation (business) transfers the risk of financial loss
to an insurer (Insurance Company), through payment of relatively smaller premiums, in comparison to the potential bigger, catastrophic economic disadvantages.
The following types of insurances should be planned to avoid losses : Disability-, Accident/Sickness-, Long term care-, Life-, Medical, dental, vision-, and property/casualty insurance.
Disability Insurance is also called income protection or dignity insurance. Due to sudden accident and illness, one can loose a job or reduce his/her ability to conduct a business,
resulting into financial loss, hence an insurance policy should be in place to compensate
at the time of such need. It normally covers the active, working life (from age 18 through age 65 or beyond). But a Long Term Care policy covers normally in older times (age 66 through death) against incapacitation or inability to conduct one’s living affairs like eating, transferring from/to bed, toileting and bathing, eventually paying for the expenses of nursing home or home healthcare services.
Medical insurance, including those for accidents, dental and vision-care, covers against sickness and for maintenance of good health for a productive life.
Life Insurance generally covers against premature death, in the form of temporary
plans (called term policies). This can be coupled with an element of investment, in the form of universal-, whole-, or endowment-policies to manage retirement expenses, and or long term care needs, including in stock market indices.
Property and casualty insurances are used to protect automobiles (boats, planes etc), homes, buildings and other structures. They also include coverage for liability, professional malpractice and numerous other things. For example, the ‘wrist’ of tennis star, Ivan Lendl, and ‘throat’ of famous Indian singer, Lata Mangeshkar, were insured for a specific sum, by Lloyd’s of London, against failing to perform.
Investments, require the generation of funds for immediate and/or future use by prudent
money management, through small periodic and/or lump sum contributions. This could be done for a comfortable retirement, education planning for children/grandchildren, for charity through foundations for specific causes, general savings for future use, and for immediate and future expenses of any kind, including transferring wealth to the heirs and future generations.
This brings into picture the borrowing for home purchase (residential mortgage) or commercial building(s), equipments, for hiring employees and facilities to live properly and conduct a business. It also results into repaying the loans in timely manner and at
profitable rates. This will require the services of a stcok-broker to invest funds in markets
through the purchase of stocks, bonds, mutual funds, REITs, ETFs, and the likes of these, domestically and internationally. A mortgage broker (may be a lender or a bank), should be consulted to make smart decisions about loans and their repayments. An accountant (CPA) should be consulted for tax matters, resulting into favorable tax planning, both for individual and corporate situations. An attorney is needed to set up wills, trusts and other power of attorney documents, for proper conduct of one’s affairs, financial or otherwise, in less painful ways, when one is alive and active and when one is gone and has to relinquish the control of things.
A competent Financial Planner, should be aware of the scope and workings of a stock-broker, insurance-agent, realtor, mortgage-broker, attorney and accountant, and should have access to all these separate ‘hats’, and be able to generate a team of professionals to conduct the practice of ‘financial planning’ effectively.