Financial Planning In Changing Economy (English)

The coronavirus pandemic has affected the economy of every country. It has left national economies and businesses counting costs and with partial or full lockdown in several countries, many establishments have closed operations leaving world economies to struggle with rising unemployment. 

Now coming to our very own country, India, this global pandemic has badly affected its already fragile economy. High inflation due to the current situation may further cripple the Indian economy. Inflation not only affects our daily budgets but also has a strong impact on our finances. How does it affect our savings and investment? You may ask how can a macro factor-like inflation affect the people at the micro-levels of a country? The main idea of saving money or investing is to ensure that your money grows with less erosion and risk, isn’t it? However, when there is rising inflation, the return percentage of your investments will change severely. Suppose, if your return percentage on your investment is 7.5% and the inflation rate is 2.5%, then you will get an actual profit percentage of 5%.

Several examples in history show people have voted out governments because of a rising rate of inflation. However, the scenario in India was a little different from the time of independence till the ’80s. From the time of independence in 1947 till the end of the 80s, the economy of our country was controlled by the government. At that time, the government used to build all the schools, colleges, bridges, etc that were needed by the people. A question may arise, where did the government get this money? To carry out these constructions, the government collected money from people in various ways like Post Office Small Savings Scheme, N.S.C, Indira Bikash Patra, Kisan Bikash Patra, Bank FD, Provident Funds, GPF, LIC, and many others. 

Since the government has money-printing machines with them, the government promised guaranteed returns against investment. These returns were also tempting as it was, in many cases, around 13% to 14%. Additionally, the gap between inflation (the price of goods) and interest rates was much higher. Do you remember Manoj Kumars movie, ‘Roti, Kapra Aur Makaan?’ The phrase is still in use but in those days, people did not literally need anything apart from ‘Roti(bread), Kapra(clothing) aur Makaan(house).’ The people were happy with that guaranteed return and did not think much about where and how to save. Their financial advisor was either their relative or an office colleague. They did not require any advice from a professional.

In those times, unlike today, people did not know the basic meaning of savings and investments. Most of them were savers and that was enough for them to fulfill all their goals. Unlike today, they did not think about their children’s education goals or plan for their retirement. It is because the cost of education was very less compared to today, pension was also guaranteed after retirement. All these responsibilities were in the hands of the government. 

There were many people who had created a lot of wealth from NSC. There were countless people who purchased a LIC with the birth of their child for tax savings and believed to be tension-free with their investment. 

In today’s world, is it still possible to meet financial dreams or needs like before?  

Is today’s economy, a government-dependent economy or is it an open-market economy? Does the government still build bridges, roads, and hospitals? What do you think? Now everything is done by private companies and we are buying their services with money. Today’s guaranteed return has no rate of interest like 13% or 14%, it is between 5% to 6%. The current inflation rate is very high. For example, the rate of interest was 13.5% in the year 1990, the price of petrol was Rs 9.84 per liter while diesel was 5 rupees. Everyone is well aware of the current prices.

Petrol Price in 1963

As a country’s economy progresses from under developing to developing and from developing to developed, the guaranteed interest rate is going to decrease. Today’s economy is based on the financial market. The market is regulated by the demand and supply of the market and not by any government. It should also be noted that the market demand and supply are not just restricted within the country but also affects the demand and supply of other countries as well. The scope of this market has reached international borders too. The government plays the role of a regulator here. That is why the government has created the RBI, SEBI, IRDA, TRAI, PFRDA, etc. 

In such situations, if we continue to rely on the advice of our office colleagues and relatives about guaranteed returns, do you think is it possible to meet all the financial goals? It is necessary to think about this once. When there was no Metro in Kolkata, we had to take a bus from Dharmatala to reach Garia, now Metro is saving our time. Time is the most precious commodity. Managing your finances and making the correct decisions for your investments require time, effort, and skill. These factors, especially the skill can be provided by a financial planner and may help you to reduce your financial stress. 

Imagine you have visited a financial planner and now you are following in his footsteps. The fact is that the situation has changed unknowingly. Suppose, you have started stable earning at the age of 30. Till what age, are you going to work? Up to the age of 60 years? (which means another 30 years). However, this is different from reality because most people think they will not be able to work after 45 years. If the average is assumed, say 30 years, you need to ask yourself how much of your income is spent on monthly expenses. In most cases, the answer I get is 80% of their income. So, this time I have a question for you – if the remaining 20% is spent on various provisions like retirement, health, child education, marriage, buying a new flat, or going on a vacation, will it be possible to implement all these in reality without proper planning? Is it possible to fulfill all the goals by just buying a product that may give a good return and tax exemption? 

Still, a lot of people do not understand anything except tax savings. Suppose you are in the 30% tax slab. This means you will get a discount of Rs 30 by investing Rs 100 in a tax savings instrument but the remaining Rs 70 is a Goal-Oriented judicious investment. 

Tax savings means thinking about the present while tax planning means thinking about goal fulfillment and the future. 

I have seen many people who search on the internet and believe with a bit of expert advice and ratings that they can get insurance cheaper online. I want to ask them if they do medical treatment for their families with the help of the internet or if they go to the doctor for medical advice. Moreover, do they take legal advice in need or do they simply browse Google? We should not only look at the latest system or trend but also its usefulness. 

Following the experts who advise about the product in newspapers or various sites based on its past return is similar to driving a car by looking at the rearview mirror. Believing the products have given good returns in the past means they are going to give good returns in the near future is silly. It is very important to remember one thing that planning is more important for financial goal fulfillment rather than choosing a particular product. 

The financial goals may vary from person to person and may be different at different stages of life but everyone requires a financial plan and you are never too old for it. 

If you found this blog post useful, please do your bit. Kindly share your opinions. Your feedback is highly important. 

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Financial Planning In Changing Economy (Bengali)

1947 সালের স্বাধীনতা প্রাপ্তির পর থেকে 80র দশকের শেষ পর্য্যন্ত আমাদের দেশের অর্থনীতি ছিল সরকার দ্বারা

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