It takes hard work to earn money to fulfill necessary present and future needs.
When it comes to being financially worry-free, there are two main schools of thought. First, you can cut down your expenses and start saving more or, preferably, look out for other options to make more money.
It’s a simple truth though, that by saving more money you’ll have more funds to invest. If that sounds like a difficult task to undertake, then it’s acceptable and maybe even prudent to have a person (professional) to help you towards a life of financial freedom i.e. a lifestyle where the money keeps on working while you are no longer working.
Case Study on Financial Freedom
Let’s use the hypothetical case of Mr. Ram. He has made investments in various asset classes of financial instruments with the help of several advisors like insurance agents, stockbroker, mutual fund distributor, tax consultant, bank’s relationship manager & employer’s agent.
Mr. Ram, who has been working in an MNC for 5 years, requires funds urgently to purchase a new house (worth INR 50 lakhs) for his family. Following are the distribution of his investments from the last 3 years, which he has made with the purpose of paying 50% cost of the house & rest from home loan:
- Life Insurance: Total Premium Paid: INR 1.80 Lakhs
INR. 40k/Yearly for INR. 10.00 Lakhs of Life Cover (ULIP Plan)
INR. 20K/Yearly for INR 25.00 Lakhs of Life Cover (Endowment Plan)
- Equity Shares: INR 60k; Current Value: INR 65k
- Mutual Fund Investments: INR 6.20 Lakhs (Tax Saver Fund); Current Value: INR 7.50 Lakhs
- Systematic Investment Plan (SIP): INR 30k/Monthly or INR 3.60 Lakh/Yearly
- Bank FD: INR 3.00 Lakhs
- Provident Fund: INR 5.00 Lakhs
He wants to withdraw funds to purchase the house but as most of his above investments are either in lock-in period or haven’t generated any returns yet that is not feasible. Thus, his purpose of making such investments isn’t achieved. Now, he’s unsure whether to buy a house by taking up to 80% of the loan (as it affects daily expenses cost) or postpone the decision. All his advisors & friends suggest to him that he buys a house through a home loan. But still, he’s not satisfied with the suggestions and investments.
Fortunately, Mr. Ram comes across a newspaper article on financial planning and how it can help him make important life decisions. He contacts a financial planner. After 5-10 minutes of discussion with the planner, he decides to share all his investments details and the future goals with the expert. After understanding Mr. Ram’s situation, the financial planner also suggests that he purchase a house through the home loan (if it is his top priority). Along with that comes a recommendation to change his investment style which helps him to pay off his home loan early (if opted) & enable his investments to earn more returns without compromising on the payment of EMIs, future cash flows & daily household expenses.
With a qualified financial planner, all of Mr. Ram’s doubts related to investments, family budget, future lifestyle, retirement plan, estate & taxation are resolved. His investments become better geared to securing his future.
It takes hard work to earn money to fulfill necessary present and future needs. If efforts are not made to invest in the right instruments, then your hard work will never pay off. Getting help from a qualified financial planner could improve your financial situation.