Financial Planning for IT Professionals

Many of my friends and colleagues have reached out to me to write a blog that will help IT professionals in streamlining their personal finances. Since my previous career was in IT and a significant number of my clientele is from IT, I thought I could pick up some of those learnings for their benefit.

Common Misunderstandings

Let me start with some of the common misunderstandings an IT professional may have regarding Financial Planning.

• I am extremely busy with my work and do not have time to manage my finances
• I can do it on my own
• The ad-hoc approach of investment is enough to achieve all my financial goals
• I have ₹ 1 Crore Life Insurance from my company and that is sufficient for my Life Insurance needs
• I have ₹ 5 lakhs of health insurance from my company and that is sufficient for my health insurance needs
• I am earning enough money every month hence Emergency Fund is not needed
• My investment is primarily driven by investing in tax savings products
• I need a guaranteed periodic stream of money in my retirement and annuity policies are most suitable
• I want to limit my investment to asset classes of my comfort (e.g. Fixed Deposits, Real Estate)
• Equity is a risky investment and hence I will stay away from it
• I have received my company’s stocks which are in addition to my salary hence there is no need for me to monitor it, act on it or sell it
• I am banking with Citibank and they know how to invest my money best
• Financial planning can wait

The list highlights some of the reasons which are preventing IT professionals from taking up the Financial Planning exercise seriously and implementing it.  I am using the following sub-sections, to articulate my message.

The Need (of Financial Planning)

If the need for Financial Planning is well understood, it will automatically generate enough interest and commitment to implement. Let me take a few examples to highlight the need.

1. You are stressed because you are not sure whether you have enough money to manage all your financial goals and that is impacting your health and family life. What if I tell you that you already have a reasonable amount of money and you will be able to meet all your financial goals comfortably. Would that reduce your stress, increase your confidence, bring positivity to you and your work and make your professional and personal life better?

2. The significant portion of your investment is only in two asset classes Debt and Real Estate. The Real Estate market is under pressure with the introduction of demonetisation and RERA regulation and the low-interest rate regime is making it difficult for you to earn interest that can beat inflation. Would not it have been nice if you had diversified your assets to include other asset classes (e.g. Equity)?

3. Your net worth is high but a significant portion of it is invested in illiquid assets (e.g. real estate). You need to arrange ₹ 1.5 crores for your kid’s undergrad from a US college next year but the offer to purchase your real estate is far and few and is heavily discounted because of the current lull in the real estate market. Would it have made sense for you to keep liquid money aside for this goal well in advance?

4. You have invested based on your research and information from the public domain in Equity (Stocks, Mutual Funds) but you are realizing that over the last decade you have performed poorly in comparison to the market. Would it have helped if you had taken help from a person who has the necessary expertise?

5. In the name of tax savings you are being wrongly advised to put your money in purchasing Endowment, Whole Life, Money back and ULIP products with higher expense, less flexibility and lower return. It is imperative that you self-educate about personal finance so that you can question/filter advice.

6. You are better versed than others in terms of financial planning and investment knowledge and believe that you have done a reasonably good job on your own. Somebody comes and ask you: have you invested in VPF, do you have international investment exposure, have you created Will and you realize that there is room for improvement. It is important to leverage the industry best practices to make smart decisions.

Financial Planning is important for all and if done right can change your life and experiences.

 The Urgency (of taking up this exercise)

Now that the need is established, a common question asked is how much time one has to get it done.

Some of the financial planning activities are time-sensitive and if not done in time can cause severe stress to the family. For example, a sufficient amount of Term Life Insurance needs to be purchased as soon as you have financial dependents.

Similarly, some of the financial activities could be irreversible. For example, if you delay the purchase of health insurance and God forbid, you develop a major illness, it would become very difficult for you to purchase any meaningful health insurance later.

But the most important factor is that the early intervention buys you time and flexibility to generate income to meet your financial goals. In the case of the IT professionals, this gets more pronounced because they have a relatively higher salary and match higher expenses and when expenses are high you want more time on your side to react.

The best time to create a Financial plan was yesterday.

 How should you go about this?

If you are capable, create a financial plan on your own and start implementing it. If you are not, take the help of an Adviser to give you head start and then take it up and run. A good Adviser can bring significant value addition with – asset allocation aligned to risk profile, diversified portfolio, risk-managed investment, predictable returns, asset protection and smooth transfer of assets to heirs and so on. It would be advisable for even DIY (Do It Yourselves) individuals to take the help of an Adviser to quickly learn the industry best practices and implement it.

Time is of the essence, a right decision taken early will help you achieve your goal faster.

The writer is a SEBI Registered Adviser and Founder of FinMyn (https://finmyn.com). He provides Fee-Only Financial Planning and Investment Advisory services. If you want to know more about him, click on https://finmyn.com/about/.