What is true financial planning?

Financial Planning has become a buzzword in the financial services industry nowadays. Banks, insurance companies, mutual fund companies, etc use this term a lot these days. An insurance agent will call himself a financial planner & a big bank may offer financial planning services. But what are they providing under the term financial planning. Most of them just use the term ‘financial planning’ very superficially & are actually just selling financial products. So an insurance agent will just sell you another Unit linked insurance plan saying that this is offering best returns, giving tax benefits & it is the best financial planning you can get. The question of insurance is usually omitted, ironically.

Banks which offer financial planning are actually just selling mutual fund schemes, portfolio management schemes or any new scheme which they can get their hands on. There are some who do give you a written document known as a ‘financial plan’ but this usually does not give you any insight on your finances but is usually a more polished way of telling you what to buy. The reason for this is that most of them earn good commissions on sales made. The question of good, practical & unbiased advice for consumers is very much absent.

Financial planning is a systematic approach to your personal finances. When you have a target, you tend to work towards it. Thus when you write down your financial goals such as comfortable retirement, child’s education or even a dream vacation, you have visualized a target. Then you need to see where you stand. This means seeing your current  financial status i.e. income, expenses, assets & liabilities. These are just like the four legs of a table. The table being in this case, your financial plan. The next step is to bridge these two i.e. where you are & where you want to be. An unbiased approach is of importance here. You may or may not need a product. If you need a product, the best should be advised.

Only with a proper financial plan will you be able to understand what needs to be done to achieve financial nirvana. This is ‘true’ financial planning!