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Need for Financial Planning

Need for Financial Planning

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Published by: api-3814557 on Oct 17, 2008
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03/18/2014

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NEED FOR FINANCIAL PLANNING
By Sanjeet Kumar Das
13 August 2006
Let\u2019s start with a basic question \u2013 DO I HAVE A NEED FOR FINANCIAL PLANNING?
The attitude is \u2013 I will plan my finance as and when I have requirement or I am too comfortable,
it will all happen.
But, how is it going to happen? Are you going to win a lottery or you always spend less that
what you earn?

Normally, we ignore some important decisions in our lives because either we don\u2019t have enough time, expertise or patience. But have you realized the cost of your decision? Planning is something that has become very important in life and would grow in importance as the time pass by.

There is a heavy cost of delaying the investment decision or not paying proper attention.
I am showing the working I have done. I have taken a hypothetical example of an individual.

AGE \u2013 25 Years
RETIREMENT AGE \u2013 50 years
LIFE SPAN \u2013 75 years

CASE 1. EFFECT OF DEAD SAVINGS
A dead savings is when a person is just saving money without growing the investments and also
not earning anything on the investments.
ASSUMPTIONS

Savings \u2013 Rs 10000 P.M
Inflation Rate \u2013 5.5 %
Earning Rate \u2013 0 %
Savings Growth Rate \u2013 0 %

CASH FLOW \u2013 WORKING LIFE
PASS
AGE OPENING ADDITIONS CLOSING
1
26
0
120000
120000
2
27
120000
120000
240000
3
28
240000
120000
360000
4
29
360000
120000
480000
5
30
480000
120000
600000
6
31
600000
120000
720000
7
32
720000
120000
840000
8
33
840000
120000
960000
9
34
960000
120000
1080000
10
35
1080000
120000
1200000
11
36
1200000
120000
1320000
12
37
1320000
120000
1440000
13
38
1440000
120000
1560000
14
39
1560000
120000
1680000
15
40
1680000
120000
1800000
16
41
1800000
120000
1920000
17
42
1920000
120000
2040000
18
43
2040000
120000
2160000
19
44
2160000
120000
2280000
20
45
2280000
120000
2400000
21
46
2400000
120000
2520000
22
47
2520000
120000
2640000
23
48
2640000
120000
2760000
24
49
2760000
120000
2880000
25
50
2880000
120000
3000000
CASH FLOW \u2013 RETIREMENT LIFE
PASS
AGE
OPENING EXPENDITURES CLOSE
26
51
3000000
57933
2942067
27
52
2942067
61119
2880948
28
53
2880948
64481
2816467
29
54
2816467
68027
2748439
30
55
2748439
71769
2676670
31
56
2676670
75716
2600954
32
57
2600954
79881
2521074
33
58
2521074
84274
2436800
34
59
2436800
88909
2347890
35
60
2347890
93799
2254091
36
61
2254091
98958
2155133
37
62
2155133
104401
2050733
38
63
2050733
110143
1940590
39
64
1940590
116201
1824389
40
65
1824389
122592
1701798
41
66
1701798
129334
1572463
42
67
1572463
136448
1436016
43
68
1436016
143952
1292064
44
69
1292064
151870
1140194
45
70
1140194
160222
979972
46
71
979972
169035
810937
47
72
810937
178332
632606
48
73
632606
188140
444466
49
74
444466
198487
245978
50
75
245978
209404
36574
CONCLUSION
If we are saving Rs. 10000 per month for 25 years, we can hope to get only Rs 1200 per month
for 25 years during retirement (Taking inflation at 5.5 %).

The working clearly shows that the investments would simply depreciate because of the fact that expenditures would appreciate. Thus, prime focus should be on earning so that the returns would beat inflation.

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